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SBA Communications (SBAC) Up 7.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
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It has been about a month since the last earnings report for SBA Communications (SBAC). Shares have added about 7.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SBA Communications due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

SBA Communications Q4 Earnings Beat on Revenue Growth

SBA Communications reported solid fourth-quarter 2018 financial results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year.

Net Income

On a GAAP basis, net income for the fourth quarter was $57.2 million or 50 cents per share compared with $7.7 million or 6 cents per share in the year-ago quarter. The improvement was primarily driven by top-line growth and lower non-operating expenses. For full-year 2018, net income was $47.5 million or 41 cents per share compared with $103.7 million or 86 cents per share a year ago, mainly due to higher expenses.

Adjusted funds from operations (AFFO) for the quarter were $229.9 million or $2 per share compared with $211.8 million or $1.78 per share in the year-earlier quarter. The figure beat the Zacks Consensus Estimate by 8 cents.

Revenues

Quarterly total revenues increased 9.2% year over year to $483.8 million, surpassing the consensus estimate of $472 million. The top-line growth was supported by strong performance across all areas of business, including healthy results in both leasing and services businesses. For full-year 2018, revenues increased 8% to $1,865.7 million.

Segmental Performance

Revenues from Site Leasing increased 7.4% year over year to $444.7 million. Domestic site leasing revenues totaled $358.2 million. Domestic cash site leasing revenues were $356.4 million compared with $332.9 million in the year-ago quarter. International site leasing revenues came in at $86.5 million. International cash site leasing revenues were $85.4 million compared with $77.2 million a year ago. The segment’s operating profit was $351.3 million, which marks an increase of 8.5%. Revenues from Site Development improved 34.9% to $39.1 million. The segment’s operating profit surged 109.4% to $10.3 million.

Other Quarterly Details

Total operating expenses increased to $333.5 million from $324 million. Overall operating income improved to $150.3 million from $119.1 million in the year-ago quarter. Adjusted EBITDA totaled $339.3 million, up 9.4% on the back of strong performance in both leasing and services businesses. Adjusted EBITDA margin was 70.5% compared with 70.6% in the prior-year quarter.

Notable Developments

During the fourth quarter, the communications tower operator expanded its portfolio, investing incremental capital in new tower builds, tower augmentations, acquisitions, and purchase of land and easements. It purchased 79 communication sites for $28.5 million and built 169 towers during the quarter. As of Dec 31, 2018, the company owned or operated 29,578 communication sites, of which, 16,263 are located in the United States.

The company also spent $21.5 million to purchase land and easements, and to extend lease terms. Notably, for the reported quarter total cash capital expenditures were $92.8 million, of which $9.9 million was non-discretionary and $82.9 million represented discretionary. Subsequent to the quarter end, SBA Communications acquired 27 communication sites at an aggregate price of $10.7 million in cash. The company has agreed to purchase 264 additional sites in the United States and internationally for an aggregate amount of $78.1 million, and expects to close a majority of them by the end of second-quarter 2019.

Cash Flow and Liquidity

During the fourth quarter, SBA Communications generated $226.5 million of net cash from operations compared with $227 million in the year-ago period. As of Dec 31, 2018, the company had $143.4 million in cash and equivalents with $8,996.8 million of net long-term debt compared with the respective tallies of $68.8 million and $9,290.7 million a year ago. In addition, SBA Communications had $205 million available under the $1.25 billion revolving credit facility, as of Feb 21, 2019.

Share Repurchase

During the fourth quarter, the company repurchased 2.2 million shares for $342 million at an average price of $158.09 per share. As of the date of filing, the company had $204.5 million worth of shares remaining under its $1 billion stock repurchase plan, which was authorized on Feb 16, 2018.



2019 Outlook

SBA Communications has provided its initial outlook for full-year 2019, which assumes an average foreign currency exchange rate of R$3.80 to $1 and C$1.30 to $1. The company expects total revenues in the range of $1,925-$1,965 million, of which site leasing revenues are expected in the band of $1,820-$1,840 million, and site development revenues between $105 million and $125 million. Adjusted EBITDA is anticipated between $1,370 million and $1,390 million. While AFFO is expected to be $910-$965 million, AFFO per share is expected to be between $7.95 and $8.44.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, SBA Communications has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, SBA Communications has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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