Here's Why SBA Communications (SBAC) is an Apt Portfolio Pick
SBA Communications Corporation SBAC owns an extensive wireless communications infrastructure portfolio globally. The company is likely to capitalize on the increased capital spending by wireless carriers to expand their networks amid accelerated 4G and 5G network deployment efforts. Also, its expansion efforts and solid balance sheet strength bode well.
This July, this Boca Raton, FL-based communications tower REIT reported second-quarter 2023 adjusted funds from operations (AFFO) per share of $3.24, beating the Zacks Consensus Estimate of $3.14. Moreover, the figure increased 5.5% from the prior-year quarter.
Management raised its outlook for 2023. It now expects AFFO per share in the range of $12.80-$13.16, up from the prior guided range of $12.55-$12.91. Analysts, too, seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2023 AFFO per share has been raised 1.4% over the past month to $12.86.
Shares of the company have lost 5.2% in the quarter-to-date period compared with the industry’s decline of 3.6%. However, given the rise in wireless connectivity usage and the secular trends of the industry, there is immense scope for growth, and SBAC is expected to perform well in the quarters ahead. Hence, this marks a good entry point in the stock now.
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Factors That Make SBA Communications a Solid Pick
Healthy Industry Fundamentals: The advancement in mobile technology, such as 4G and 5G networks, and the proliferation of bandwidth-intensive applications have driven the growth in mobile data usage globally. Also, rampant usage of network-intensive applications for video conferencing and cloud services has fueled the rise.
This has led to greater capital spending by wireless carriers to meet this incremental demand, aiding demand for SBAC’s wireless communication infrastructure. With wireless consumer demand likely to shoot up considerably in the upcoming years, SBAC remains well-positioned to benefit from this trend. We expect a 3.1% increase in the company’s 2023 total revenues.
Resilient Site-Leasing Business Model: The company has a resilient and stable site-leasing business model as it generates most of its revenues from long-term (typically 5-10 year) tower leases with built-in rent escalators. This assures stable site-leasing revenues for the company. In the second quarter of 2023, 89% of the total incremental domestic leasing revenues came from the big four carriers — AT&T, Inc. T, T-Mobile, Verizon and Dish.
Moreover, in late July 2023, SBAC signed a new five-year master lease agreement with AT&T. The deal will help AT&T deploy 5G and other advanced technologies by leveraging SBAC's vast U.S. tower portfolio, benefiting both companies.
We expect 2023 site-leasing revenues to increase 7.1% year over year.
Expansion Efforts: SBA Communications’ portfolio expansion efforts into select international markets with high growth characteristics position it well to take advantage of the secular trends in mobile data usage and wireless spending growth across the globe.
Notably, in October 2022, it acquired 2,632 sites from Grupo TorreSur in Brazil for roughly $725 million in cash. The recent 5G spectrum options in Brazil position SBA Communications well to benefit from the transaction.
Further, in the second quarter of 2023, the company acquired nine communication sites for a total cash consideration of $7.2 million. It also built 64 towers during this period. Subsequent to the end of the quarter, SBAC purchased or is under contract to buy 134 communication sites for a total consideration of $72.9 million in cash. It expects to conclude these buyouts by the end of this year.
Balance Sheet & Cash Flow Strength: SBAC is focused on maintaining a healthy balance sheet position with ample liquidity. As of Jun 30, 2023, it had $273.6 million of cash and cash equivalents, short-term restricted cash and short-term investments. Also, during the second quarter, its net debt-to-annualized adjusted EBITDA improved sequentially to 6.6X from 6.9X. As of Jul 31, 2023, the company had $360 million outstanding under its $1.5 billion revolving credit facility. With ample financial flexibility, SBAC is well-poised to capitalize on future growth opportunities.
Also, the company’s current cash flow growth is projected at 14.77% compared with the industry’s average of 9.37%.
Dividend: Solid dividend payouts are arguably the biggest enticement for REIT shareholders, and SBA Communications has remained committed to that. In February 2023, it announced a quarterly cash dividend of 85 cents per share on its Class A common stock, representing a hike of 20% from the prior payout of 71 cents. Moreover, it has increased its dividend four times in the last five years, and the five-year annualized dividend growth rate is 24.19%. Such efforts enhance shareholders’ wealth and boost investors’ confidence in the stock. Check SBA Communications’ dividend history here.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Welltower WELL and Americold Realty Trust COLD, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s current-year funds from operations (FFO) per share has moved marginally northward over the past month to $3.53.
The Zacks Consensus Estimate for Americold Realty Trust’s 2023 FFO per share has been raised 4.1% over the past month to $1.26.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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