5G is here. The new networks are online and expanding, and customers – individual consumers, institutional users, and industrial applications – are starting to take advantage of the new technology. The advantages of 5G are already well-known: faster connections, more efficient upload and download capability, lower latency, greater security. 5G tech is essential for developing the full potential of autonomous vehicles and IoT projects. How it will impact ordinary life remains to be seen.
Some of Wall Street’s top analysts have been taking the measure of the new network, and its probably effect on related companies – and their stocks. Using TipRanks database, we’ve pulled up the latest data on three such stocks that the analysts have tapped for gains in the growing 5G environment.
CommScope Holding (COMM)
We will start with CommScope, a hardware provider for network infrastructure. The company produces antennas for building and tower installation, base stations, and outdoor wireless system power supplies. As a holding company, these CommScope products are produced and marketed by subsidiaries, to customers worldwide.
The company announced last month a partnership with Nokia on a passive-active antenna platform, promising a faster 5G rollout for customers. And earlier this month, CommScope announced a contract with the city of Wyandotte, Michigan, for networking installation, including 5G, and giving the company access to over 25,000 potential customers.
CommScope reported $2.17 billion in Q3 revenue, up 3% year-over-year. The Broadband segment showed 20% year-over-year growth, and the free cash flow hit $350 million.
JPMorgan’s 5-star analyst Samik Chatterjee elaborates on CommScope forward potential: “Our constructive view on shares of CommScope is led by expectations for an improving outlook for the Outdoor Wireless Segment which stands positioned to benefit from the ramp in 5G densification efforts for wireless networks, in combination with continuing resilient spending from cable/broadband networks.”
“We expect the pace of investments in the wireline network to continue, led by bandwidth requirements to support peak usage, in addition to tailwinds stemming from initiatives such as RDOF and reclamation of satellite spectrum for 5G,” the analyst added.
In line with these comments, Chatterjee rates the stock an Overweight (i.e. Buy), and his $18 price target suggests a 35% upside in the coming year. (To watch Chatterjee’s track record, click here)
Chatterjee is broadly in line with the rest of Wall Street, which has assigned COMM slightly more “buy” ratings than “holds” over the past three months — and sees the stock growing about 19% over the next 12 months, to a target price of $15.80. (See COMM stock analysis on TipRanks)
Crown Castle (CCI)
The next stock on our list, Crown Castle, operates as a real estate investment trust, owning and managing cell network assets, including towers and transmitter locations. The company boasts over 40,000 towers, 70,000 operational small cells, and 80,000 miles of fiberoptic lines. Crown Castle’s network is part of the shared infrastructure supporting the wireless communications system in the US.
The expansion of 5G networks has been good to Crown Castle, and the company has seen growth and expansion.
In November, Crown Castle signed an agreement with DISH, which is looking to expand its 5G footprint. The lease agreement gives DISH rental rights on up to 20,000 towers, and includes fiber transport.
Quarterly revenues have held steady between $1.4 and $1.49 billion all year, with Q3, the most recent, coming at the latter value. The company saw site rental revenue gain 4% yoy. Customer rollouts to 5G, and consequent need for additional tower sites, underlies the sound financial results.
The sound quarterly results allowed the company to increase its quarterly dividend by 11%. Common share holders now receive $1.33 per common share, annualizing to $5.32 and giving a yield of 3.4%.
Deutsche Bank analyst Matthew Niknam sees the DISH deal as part of an overall positive picture for Crown Castle: “CCI is poised to be the early beneficiary of multiple new industry catalysts in upcoming years, including DISH’s 5G build and C-Band spectrum deployments.”
“Specifically, we believe its agreement with DISH for up to 20k sites puts it in a premier position to be the tower partner of choice, at least early on. Our analysis indicates DISH could easily account for 10% of CCI’s Tower site leasing revenue by 2027E, with the agreement (conservatively) adding $15/share in value for CCI. Second, with ~70% of CCI’s sites located in the top 100 markets, we believe its portfolio over indexes to markets most likely to see initial C-Band builds,” the analyst added.
To this end, Niknam rates CCI a Buy along with a $180 price target. This figure implies a 17% upside from current levels. (To watch Niknam’s track record, click here)
So, that’s Deutsche Bank’s view, let’s turn our attention now to rest of the Street: CCI’s 3 Buys and 2 Holds coalesce into a Moderate Buy rating. Should the $170.25 average price target be met, about 11% upside could be in store. (See CCI stock analysis on TipRanks)
Sierra Wireless (SWIR)
Based in British Columbia, Canada, Sierra Wireless designs and manufactures wireless equipment for an international customer base. The company products include machine-to-machine and mobile computing devices for use on wireless networks, as well as modems, routers, and gateways for mobile broadband wireless. Sierra holds over 550 unique patents.
Sierra’s focus on machine-to-machine systems make its hardware especially valuable for IoT applications. The company offers 5G capable routers and broadcast solutions for IoT networks, as well as the first 5G enabled vehicle router on the market.
Turning to the financials and the stock, we see the company moving in two directions at once. Quarterly revenues have been falling this year, and Q3 came in at just $113 million – far down from the $144 million reported in Q2. While the quarter was generally down, the automotive business did show a 3.6% yoy increase.
The company’s stock, however, has been on an upward trajectory, and with a 49% year-to-date gain has outperformed the S&P 500 index.
Among the bulls is Colliers analyst Charles Anderson who calls SWIR a “5G IoT play.” Anderson rates the stock a Buy along with a $20 price target. This target indicates the extent of his confidence – it implies a 40% one-year upside. (To watch Anderson’s track record, click here)
Backing his stance, Anderson writes, “We like the combination here of management/Board upgrades (CEOs that led turnarounds at IDTI and LSCC recently joined the Board); business model transition toward higher margin recurring revenue; 5G product cycle exposure; and depressed valuation relative to both peers and historicals…”
“Sierra is in the process of transforming itself from a low margin supplier of cellular connectivity hardware to a higher margin supplier of full stack cellular IoT (hardware/software/service). This is both a better business model and a more compelling offering to customers,” the analyst added.
All in all, Sierra has an even split among the recent reviews, 2 Buys and 2 Holds, making the analyst consensus rating a Moderate Buy. (See SWIR stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.