Why Is SBA Communications (SBAC) Down 0.7% Since Last Earnings Report?

A month has gone by since the last earnings report for SBA Communications (SBAC). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SBA Communications due for a breakout? 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 drivers.

SBA Communications Beats Q3 AFFO & Revenue Estimates

SBA Communications delivered solid third-quarter 2019 results, wherein both the bottom line and the top line increased year over year, and topped the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income for the September quarter was $21.8 million or 19 cents per share compared with $16.1 million or 14 cents per share in the year-ago quarter, primarily driven by top-line growth and lower expenses.

Adjusted funds from operations (AFFO) were $247.4 million or $2.15 per share compared with $222.7 million or $1.92 per share in the year-earlier quarter. The bottom line beat the Zacks Consensus Estimate by 7 cents.

Revenues

Quarterly total revenues increased 8.6% year over year to $507.5 million, surpassing the consensus estimate of $498 million. The top-line growth was supported by strong leasing and site development businesses.

Segment Results

Revenues from Site Leasing increased 7.7% year over year to $468.6 million. Domestic site leasing revenues totaled $374.7 million. Domestic cash site leasing revenues were $371.4 million compared with $350.4 million in the year-ago quarter. International site leasing revenues came in at $93.9 million. International cash site leasing revenues were $93.4 million compared with $79.8 million a year ago. The segment’s operating profit was $375.6 million, which marks an increase of 9.5% year over year. Revenues from Site Development improved 21.9% to $39 million.

Other Details

Total operating expenses increased to $353.7 million from $329.2 million. Overall operating income improved to $153.8 million from $138 million in the year-ago quarter. Adjusted EBITDA totaled $355.4 million, up 8.3% on the back of healthy performance in both leasing and services businesses. Adjusted EBITDA margin slipped to 70.6% from 71% year over year.

On Sep 13, 2019, SBA Communications, through a trust, issued $1.165 billion of Secured Tower Revenue Securities Series 2019-1C, which has an anticipated repayment date in January 2025 and a final maturity date in January 2050.

During the reported quarter, it repurchased 0.7 million shares for $175.7 million, of which $2.7 million was funded in the ongoing quarter, at an average price of $249.04 per share under its $1 billion stock repurchase plan. As of the date of filing, the company had $824.3 million of authorization remaining under the plan. Further, the company paid out its first cash dividend of $41.9 million in third-quarter 2019.

Notable Developments

On Aug 30, 2019, the company closed the acquisition of 94% of a previously unconsolidated joint venture in South Africa. The cumulative amount invested by the company in South Africa through the closing date is nearly $140 million. At closing, the South Africa joint venture had 889 towers in operation. During the third quarter, the communications tower operator expanded its portfolio, investing incremental capital in new tower builds, tower augmentations, and purchase of land and easements.

Excluding the sites from the South Africa investment, it purchased 78 communication sites for $27.8 million in cash, and built 98 towers during the quarter. As of Sep 30, 2019, (including South Africa) the company owned or operated 30,904 communication sites, of which, 16,385 are located in the United States and its territories.

SBA Communications also spent $15.9 million to purchase land and easements, and to extend lease terms. Markedly, for the third quarter, total cash capital expenditures were $171 million, of which $8.8 million was non-discretionary and $162.2 million represented discretionary. Subsequent to the quarter end, the company acquired 6 communication sites for $6.7 million in cash. In addition, it has agreed to purchase 107 additional sites for $32.7 million, and expects to close a majority of them by the end of first-quarter 2020.

Cash Flow & Liquidity

During the third quarter of 2019, SBA Communications generated $238.7 million of net cash from operations compared with $199.1 million in the year-ago quarter. As of Sep 30, 2019, the company had $128.8 million in cash and equivalents with $9,821.5 million of net long-term debt.

2019 View Updated

SBA Communications has updated its outlook for full-year 2019, which assumes an average foreign currency exchange rate of R$4.10 to $1, C$1.33 to $1, and R15.2 to $1, for the fourth quarter of 2019.

The company expects total revenues in the range of $1,994-$2,014 million (previous expectation was $1,974-$2,014 million), of which site leasing revenues are expected in the band of $1,849-$1,859 million (previously $1,844-$1,864 million), and site development revenues between $145 million and $155 million (previously $130 million and $150 million).

Adjusted EBITDA is anticipated between $1,400 million and $1,410 million (previously $1,395 million and $1,415 million). While AFFO is expected to be $954-$980 million (previously $943-$989 million), AFFO per share is projected between $8.31 and $8.54 (previously $8.20 and $8.60).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, SBA Communications has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. 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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