SBA Communications SBAC is well-poised to witness healthy demand for its tower assets as wireless service providers continue to expand their networks amid data-volume growth and accelerated deployment of 5G networks.
Additionally, with the increased innovation and adoption of data-driven mobile devices and applications, such as machine-to-machine connections, social networking and streaming of video, wireless consumer demand is expected to escalate considerably in the years to follow. This gives SBA Communications great scope to capitalize on the upbeat trend.
It 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 that have built-in rent escalators.
Moreover, with wireless service providers continuing to lease additional antenna space on the company’s towers amid the increase in network use, data transfer, network expansion and network coverage requirements, SBAC’s site-leasing revenue growth is likely to remain robust.
SBA Communications has been focusing on enhancing and expanding its tower portfolio through the extension of its business into select international markets with high growth characteristics. In the second quarter, it acquired 210 communication sites and one data center in Brazil for total cash consideration of $127.3 million and built 100 towers. It is also under contract to acquire roughly 2,600 sites from Grupo TorreSur in Brazil for $725 million.
Thus, portfolio expansion positions the company well to take advantage of the secular trends in mobile data usage and wireless spending growth across the globe.
SBA Communications maintains a healthy balance-sheet position with ample liquidity. As of Aug 1, 2022, the company had $480 million outstanding under its $1.5 billion revolving credit facility. This gives it ample financial flexibility to pursue its growth endeavors.
Moreover, SBAC carries out share buybacks and announces dividend hikes from time to time. This demonstrates the company’s commitment to driving shareholder value alongside boosting shareholders’ confidence in the stock.
Analysts seem bullish about the Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share indicates a favorable outlook for the company as it has been revised marginally upward in the past week to $12.17.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of SBAC have declined 9.3% in the past six months compared with the industry’s fall of 18.0%.
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However, SBA Communications has a high customer concentration, with Verizon VZ, AT&T T and T-Mobile TMUS accounting for the majority of its domestic site-leasing revenues. Notably, in the second quarter of 2022, T-Mobile, AT&T and Verizon accounted for 40.8%, 29.0% and 20.2%, respectively, of SBAC’s domestic site-leasing revenues.
Therefore, the loss of any of these customers, consolidation among them or a reduction in network spending is likely to hurt the company’s top line significantly.
SBA Communications has a substantially leveraged balance sheet with a high debt-to-capital ratio compared with the industry average. This limits its strength to withstand any credit crisis and unexpected negative externalities in the future.
Also, a hike in interest rates is likely to increase borrowing costs, affecting its ability to purchase or develop real estate.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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