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SBA Communications Corporation SBAC is well poised to witness healthy demand for its tower assets, as wireless service providers continue to expand their network amid the increased adoption of data-driven mobile devices and applications. However, a highly leveraged balance sheet limits its ability to withstand any unexpected negative externalities in the upcoming period.
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 shoot up. The deployments of 5G networks and additional spectrum have increased, compelling carriers to advance their wireless networks.
In order to capture consumer demand and ride its growth curve over the long haul, the company continues the addition of sites to its portfolio. It has an enhanced focus on the high growth international markets. Over the years, the company has developed or acquired thousands of towers throughout Central and South America and across Canada. Subsequent to the second-quarter 2021 end, it has purchased or agreed to purchase 1800 communication sites for $270 million.
SBA Communications has a resilient and stable site-leasing business model. The company generates majority of its revenues from long-term tower leases that have built-in rent escalators. Hence, with high operating margins, its tower-leasing business looks attractive.
The company also has a robust balance sheet and operational strength, which provide it the flexibility to be opportunistic regarding investment choices, share repurchases and dividend growth.
Shares of this Zacks Rank #3 (Hold) company have gained 17% over the past six months, outperforming the industry's rally of 6.9%. The trend in the estimate revisions for 2021 funds from operations (FFO) per share also indicates a favorable outlook for the company having been revised marginally upward over the past two months. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
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However, the company 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. Therefore, the loss of any of the customers or consolidation among them or a reduction in network spending will have a significant material impact on the company’s top line.
SBA Communications also has a substantially-leveraged balance sheet with $12 billion of total debt and leverage of 7.3X as of the end of the second quarter. A high amount of debt will likely increase the company’s financial obligations. In addition, its debt-to-capital ratio is higher than the industry average. A high debt-to-capital ratio limits its strength to withstand any unexpected negative externalities in the future.
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