Published on July 11th, 2010 | by Babar Bhatti7
Cell Tower Industry – Good Investment
Do you remember this post where we showed you a cell tower which looks like a tree? According to this report, Cell towers makers in the US are doing quite well. The advantage with companies such as American Tower Corp., Crown Castle International and SBA Communications is that they offer investors some exposure to wireless growth, without the intense competition facing carriers.
Here’s more from the WSJ article.
True, the tower operators look expensive compared with telecom stocks. But talk the companies may convert to real estate investment trusts, allowing them to avoid corporate taxes by paying out their earnings as dividends, is giving them an extra boost. American Tower is up 7% since early May when it detailed steps it is taking to convert by 2012.
Barclays Capital analyst James Ratcliffe estimates that American Tower is trading at 15.5 times projected 2011 funds from operations while Crown Castle is at 15.2, both below REIT average of 16.4 times. Funds from operations, a common REIT metric, roughly translates as earnings before depreciation and amortization. Barclays expects both companies to grow FFO at a faster rate than REITs overall.
Treating tower companies as real-estate plays make sense. They rent space on their towers to carriers and others, with rent based on factors like weight and positioning of equipment hung by the “tenants.” Macquarie Capital estimates there are 120,000 towers in the U.S. About 40% of them are owned by American Tower, Crown Castle and SBA.
Risks include new technology that may reduce carriers’ need for tower space, says PRTM partner Dan Hays, by allowing carriers to more easily share equipment.