MoffettNathanson: FirstNet award could spur tower sector growth

Cell tower

U.S. tower companies have suffered sluggish growth in recent years, but the upcoming FirstNet contract award has the potential to shake up that trend.

In defending a strong “buy” recommendation for U.S. tower companies despite their modest share growth, recent analysis (reg. req.) by MoffettNathanson pointed out the FirstNet award stands to materially benefit domestic towers in an as-of-yet unconfirmed way.

“We can’t put precise numbers around FirstNet, and the deployment and ultimate success of the project is not without risk. However, it represents a real source of upside for the tower leasing industry, with outcomes that could range from nice to great, depending on how things ultimately shake out,” said Nick Del Deo and Sydney Marks in the research report.

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FirstNet, the in-progress, nationwide, interoperable wireless network for public safety officials, has completed its Request for Proposals and plans to announce its award contract by November. While FirstNet didn't release the names or amount of applicants, three decided to self-disclose: Rivada Mercury, pdvWireless and AT&T.

In MoffetNathanson's analysis, it also assumed Verizon had bid for the project, but that T-Mobile and Sprint were not in positions to bid. The analysts suggested it was more likely for an incumbent carrier like Verizon or AT&T to win, but didn't rule out a newer carrier entirely.

“Logic would suggest that an incumbent carrier would have significant advantages over a new entrant. An incumbent would have a network on which FirstNet could piggyback, experience operating a national network with high uptime requirements, marketing and distribution resources and significant financial resources,” said Del Deo and Marks.

“That being said, we can’t completely ignore other bidders. This is a government contract, and factors that analysts like us might typically discount could matter,” they added.

Since the results of those options range quite dramatically, the analysis forecast stock values for the three biggest tower companies under three different scenarios: If Verizon, AT&T or a smaller carrier wins the award.

As a result of those forecasts, MoffetNathanson gave its top pick to SBA, but also rated American Tower and Crown Castle as a Buy. It offered target prices of:

  • SBA: $150

  • American Tower: $130

  • Crown Castle: $112

Moreover, the analysts said the timing of the awards makes now a good time for investment. It said the award falls into the “sweet spot” as a potential catalyst, given that leasing activity won't commence for at least 12 months and that precise numbers aren't available. The analysts noted that those are factors of which astute investors could take advantage.

“The most effective catalysts for stocks are oftentimes ones that are around the bend, not ones that are right in front of us and not ones miles down the road. A catalyst that’s too close is visible to everyone and therefore likely already priced into the stock. If it’s years out, well... we could be dead by then. The sweet spot lies somewhere in between,” the analysts said.

For more:
- check out the MoffetNathanson analysis (reg. req.)

Related Articles:
AT&T officially throws hat into the ring for FirstNet
FirstNet closes deadline for proposals, moves onto evaluation phase
FirstNet still on track to award contract by November

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