Crown Castle International (CCI -1.39%) and American Tower (AMT -1.43%) aren't exactly household names, but if you use your phone to look them up there's a fair chance that you may need one of the two companies to make it happen. American Tower and Crown Castle are leading players in cell towers. Mobile providers lease space on these cell towers to make sure that they have strong signals in the area.
Crown Castle operates 40,000 cell towers. Its infrastructure portfolio also includes roughly 80,000 on-air or under-contract small cell nodes and 80,000 route miles of fiber. American Tower's empire consists of 219,000 communication sites. Its acquisition of CoreSite Realty -- a $10 billion deal that closed two weeks ago -- adds highly interconnected data center facilities and critical cloud on-ramps to its arsenal.
Both stocks were on the move last week, and that was even before volatility rocked the general market. A pair of analysts with different takes on the industry had American Tower and Crown Castle moving higher earlier in the week before retreating by the middle of the week. Let's take a close look at both calls.
The first trading week of 2022 began on a positive note for the cell tower stocks. Bank of America analyst David Barden boosted his price target on Crown Castle from $200 to $224, a welcome move since the stock was already trading north of $200. Barden wasn't going to be able to stick to his buy rating on Crown Castle with the stock 4% above his target price at the beginning of the year.
Barden argues that the year ahead will be an exciting time for communications infrastructure stocks. With so many networks being built, he feels that multiple expansion is justified for U.S. tower and fiber companies as obvious beneficiaries of the infrastructure upgrades.
The optimism didn't last. Two days later, Philip Cusick at JPMorgan was downgrading both of the leading cell tower stocks. He lowered his rating on American Tower from neutral to underweight. He also slashed his price target on the shares from $285 to $271. After seeing the stock climb a dividend-adjusted 32% last year, he feels that the high multiple isn't warranted. Unlike Barden, who is upbeat about what the new year will bring, Cusick sees limited domestic macro tower growth in 2022. Throw in the execution risk and equity raises associated with the CoreSite acquisition, and Cusick recommends that investors sell the stock after last year's rally.
Cusick is also downgrading Crown Castle, but in this case his call is going from overweight to a kinder neutral. Like Barden, Cusick had a $200 price target on Crown Castle heading into 2022. He's just going to stick with that price goal for now. He feels the shares are fairly valued. With his outlook calling for slowing growth, he does not see an argument for multiple expansion in this climate.
Which analyst is right? It's fair to say that the 5G revolution hasn't lived up to the hype. We were all supposed to be backed by blazing wireless speeds, and chunky data files would translate into big business for the antenna tower operators. Growth has been slow but steady, and right now that's not necessarily a bad thing. With market volatility raging so far in 2022, there's something to be said about necessary all-weather infrastructure plays in the realm of connectivity infrastructure. American Tower and Crown Central currently yield 2.1% and 3%, respectively.
There are beefier yields to be had out there, but with a niche market that has years to run and catalysts to make it worth your time, it's a smart place for income investors to consider allocating at least a small sum of their money.