October 31, 2017 / 8:46 PM / a year ago

Buy signal blares for cell-tower stocks in 2017

NEW YORK (Reuters) - A hitch in a proposed merger of U.S. wireless carriers Sprint Corp (S.N) and T-Mobile US (TMUS.O) has further boosted buoyant shares of cell tower stocks, which could benefit if there is no combined company to cut costs by reducing tower usage.

Smartphones with the logos of T-Mobile and Sprint are seen in front of a Soft Bank logo in this illustration taken September 19, 2017. REUTERS/Dado Ruvic/Illustrations

Shares of American Tower Corp (AMT.N), Crown Castle International Corp (CCI.N) and SBA Communications Corp (SBAC.O) all closed up more than 2 percent on Monday. Reuters on Monday reported that SoftBank Group Corp (9984.T) and Deutsche Telekom AG (DTEGn.DE) have reached an impasse in their talks to merge Sprint and T-Mobile.

Shares climbed further Tuesday after earnings reports from SBA and American Tower.

Investors had bid up shares of cell-tower stocks on news of the deal’s chances dwindling because the combined wireless company would have been expected to cut costs by reducing the number of cell-tower sites, said Nick Del Deo, analyst at MoffettNathanson Research.

“The market interpreted the lower odds of a deal as being positive for towers because of lower risk of cell site decommissionings,” Del Deo said. “They would decommission tens of thousands of cell sites if they were to get together.”

Cell-tower stocks already were surging in 2017: Crown Castle shares have climbed 23 percent, American Tower has soared 36 percent, while SBA Communications has minted a gain of more than 50 percent.

This contrasts sharply with the dour performance of telecommunications shares such as Verizon (VZ.N), down 10 percent, and AT&T (T.N), which has fallen 20 percent this year, amid concerns about fierce competition.

Cell-tower growth prospects have improved as carriers seek to deploy more spectrum bands to improve their networks, which would require more hardware to be built on the towers, says RBC Capital Markets analyst Jonathan Atkin.

“Towers are more a play on wireless network spending, they’re not a play on carriers themselves,” Atkin said.

The cell-tower stocks struggled in the wake of the U.S. election of President Donald Trump last November. For example, expectations that Trump’s agenda would lead to higher inflation weighed because the cell-tower companies operate under long-term contracts, Del Deo said, but such concerns have faded somewhat.

The fear was “if inflation went up a whole bunch they wouldn’t be able to reprice their contracts for a long period of time,” Del Deo said.

The stocks continued their runs on Tuesday following results from SBA and American Tower. SBA shares gained 4.7 percent, while American Tower and Crown Castle both rose less than 1 percent apiece.

Editing by David Gregorio

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