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Will Leasing Support SBA Communications' (SBAC) Q4 Earnings?

Zacks Equity Research

SBA Communications Corporation SBAC is scheduled to report fourth-quarter 2018 financial results after the closing bell on Feb 21. In the last reported quarter, the company delivered a positive earnings surprise of 2.7%. Notably, SBA Communications surpassed the Zacks Consensus Estimate in each of the last four quarters, the average beat being 14.9%.

The communications tower operator is likely to report higher year-over-year revenues in both the operating segments on the back of solid domestic site leasing business, excellent services and cost control initiatives. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors at Play

SBA Communications is poised to benefit from strong customer activity both domestically and internationally, coupled with healthy backlogs with each of its big four U.S. customers. The company expects the positive momentum, backed by investment by these customers in their networks, to have resulted in new leases and amendment signings in the quarter.

The Zacks Consensus Estimate for revenues from Site Leasing business, which accounts for the lion’s share of total revenues, is pegged at $443 million, up from $414 million reported in fourth-quarter 2017. Revenues from Site Development business are expected to be $30.2 million compared with $29 million reported in the prior-year quarter. For the fourth quarter, the consensus estimate for total revenues stands at $472 million. The company reported $443 million in the year-earlier quarter. Adjusted funds from operations (AFFO) per share is pegged at $1.92. The company reported earnings of 23 cents in the prior-year quarter.

Operating profit from Site Leasing is expected to increase to $349 million from $324 million reported in the year-earlier quarter, while the same from Site Development is likely to improve to $6.7 million from $4.9 million.

SBA Communications believes that the synergies of robust customer demand, operational efficiency and strategic capital allocation will help it to enhance shareholder value by growth in AFFO. However, the company remains susceptible to earnings volatility due to unfavorable foreign currency movements on account of its geographically diverse scale of operations.

What Our Model Says

Our proven model does not conclusively show that SBA Communications is likely to beat earnings this quarter as it does not possess one of the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: SBA Communications’ Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate is -0.16%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

SBA Communications Corporation Price and EPS Surprise

SBA Communications Corporation Price and EPS Surprise | SBA Communications Corporation Quote

Zacks Rank: SBA Communications currently has a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative Earnings ESP acts as a spoiler.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Live Nation Entertainment, Inc. LYV has an Earnings ESP of +3.77% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Theravance Biopharma, Inc. TBPH has an Earnings ESP of +8.04% and a Zacks Rank #2.  

MacroGenics, Inc. MGNX has an Earnings ESP of +5.44% and a Zacks Rank #2.

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