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Ring, Ring: Have a Look at Cellphone-Tower REITs

Telecom carriers such as Verizon, AT&T and T-Mobile need to have antennas on cellphone towers.
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Cellphone usage continues to soar, with people deploying them for everything from watching movies to investing.

For mobile phones to work -- you’ve probably endured dropped calls from time to time -- telecommunications carriers such as Verizon, AT&T and T-Mobile need to have antennas on cellphone towers. The antennas enable customers to make calls and view content.

Cellphone-tower owners charge the carriers rent to place their antennas on the towers. And people use their cellphones in good economic times and bad, so the tower industry is largely recession-proof.

The three biggest tower companies are publicly traded real estate investment trusts, or REITs. And some experts see them as attractive buying opportunities now, after they declined earlier this year.

The group has rebounded since October, but all three remain down at least 20% year to date. Here are thoughts on the trio from Morningstar analyst Matthew Dolgin, listed in order of company size.

He gives each of the three a narrow moat, or durable competitive advantage. But he’s less enthusiastic than some other analysts.

American Tower

(AMT) - Get Free Report

Dolgin puts fair value for the stock at $210. It recently traded at $222 and has a dividend yield of 2.66%.

“We think American Tower's strategy to diversify its tower portfolio globally leaves it best positioned among the three U.S. tower companies, as it is primed to benefit from the continually increasing demand in mobile data worldwide,” he wrote in a commentary.

“However, we don't think veering into the data-center business, which it did with its acquisition of CoreSite, will pay off, and it distracts from the tower focus we liked for American Tower.”

Crown Castle

(CCI) - Get Free Report

Dolgin puts fair value for the stock at $135. It recently traded at $142 and has a dividend yield of 4.43%

“Crown Castle's strategy has deviated from that of its two biggest competitors, which focus almost exclusively on towers and have a multinational footprint,” Dolgin wrote in a commentary.

“Crown operates exclusively in the U.S.. and is aggressively investing in fiber to pursue small-cell communications sites,” he said. He doesn’t view that as a good thing.

“Crown Castle has adopted a high-risk strategy. We acknowledge the potential upside, but small cells require heavy initial investment and lack the competitive advantage that Crown has with its towers.”

SBA Communications

(SBAC) - Get Free Report

Dolgin puts fair value for the stock at $250. It recently traded at $301 and has a dividend yield of 0.95%.

“SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use financial leverage so aggressively provides unnecessary risk and ultimately keeps it from deepening its presence in several of its developing markets,” he wrote in a commentary.

“That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.”

The author of this story owns shares of American Tower, and his girlfriend works at SBA Communications.

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