2 Growth Plays That Should Benefit From AT&T's Spending Splurge

 |  Includes: AMT, FFIV, T
by: Bret Jensen

The growing use of smartphones is changing the technology landscape as users need more and more bandwidth to utilize all the apps and functionality these products make available. Carriers like Verizon (NYSE:VZ) and AT&T (NYSE:T) are spending billions of dollars to continually upgrade their networks in order to build the capacity needed to accommodate this exponentially growing traffic. AT&T announced this week they will spend an additional $14B over the next three years in order to keep up with their customers growing bandwidth requirements. Here are two fast growing communication and/or network equipment providers that should benefit from this increasing spending from AT&T. This increased spending on infrastructure should be followed at some point by Sprint (NYSE:S) given their recent capital infusion from Softbank.

F5 Networks (NASDAQ:FFIV) provides application delivery networking technology that optimizes the delivery of network-based applications.

4 reasons FFIV is a good growth play at $87 a share.

  1. After falling some 35% over the past six months, the stock is selling near the bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
  2. The 33 analysts that cover the shares have a median price target of $106 a share on the stock. S&P has a "buy" rating and a $110 a share price target on FFIV.
  3. The company has grown revenues at better than a 18% annual clip over the past five years (Earnings have grown better than 30% annually over that time span). Analysts expect between 14% and 16% sales increases in FY2012 and FY2013. FFIV has a reasonable five year projected PEG of just over 1 (1.05).
  4. F5 Networks has a robust balance sheet with over $500mm in net cash on the books. The company has also increased operating cash flow by approximately 150% over the past three years.

American Tower Corporation (NYSE:AMT) is a real estate investment trust, operates as a wireless and broadcast communications infrastructure company. It develops, owns, and operates communications sites including cell towers.

4 reasons AMT is a good long term holding at under $75 a share:

  1. In a quarter of disappointing earnings and downward earnings estimates, consensus earnings estimates for both FY2012 and FY2013 have increase nicely over the past two months.
  2. The company has crushed earnings three of the past four quarters. The average beat over consensus over that period has been north of 20%.
  3. The company is growing rapidly internationally (26% of total revenues and increasing). American Tower has an increasing presence in emerging markets like Brazil, Mexico, Peru and India.
  4. S&P has a "buy" rating on AMT and just raised its price target to $84 from $82. TheStreet also reiterated its "buy" rating this week. I would look for at least one or more two upgrades or raised price targets in the weeks ahead as analysts factor in the increased spending plans of AT&T.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FFIV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.