The advancement in mobile technology, such as 4G and 5G networks, and the proliferation of bandwidth-intensive applications have driven the growth in mobile data usage globally.
This has resulted in wireless service providers and carriers expanding their networks and deploying additional equipment for existing networks to boost network coverage and capacity to meet the rising consumer demand, poising tower real estate investment trusts (REITs) like
SBA Communications
SBAC
well for growth.
The company 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 with built-in rent escalators.
Moreover, amid the increase in network use, data transfer, network expansion and network coverage requirements, wireless service providers are continuing to lease additional antenna space on the company’s towers. Hence SBAC’s site-leasing revenue growth is likely to remain robust in the upcoming period.
SBA Communications’ portfolio expansion efforts into select international markets with high growth characteristics positions it well to take advantage of the secular trends in mobile data usage and wireless spending growth across the globe. In the third quarter, it acquired 131 communication sites for total cash consideration of $54.9 million and built 113 towers.
This October, the company closed the earlier announced acquisition of 2,632 sites from Grupo TorreSur in Brazil for $725 million in cash. The recent 5G spectrum options in Brazil positions SBA Communications well to benefit from the transaction.
On the balance-sheet front, SBA Communications exited third-quarter 2022 with $297.5 million of cash and cash equivalents, short-term restricted cash and short-term investments. As of Oct 31, 2022, the company had $995 million outstanding under its $1.5 billion revolving credit facility. With ample financial flexibility, SBAC is well-poised to capitalize on future growth opportunities.
Further, SBAC’s current cash flow growth is projected at 24.96% compared with 9.70% estimated for the industry.
SBA Communications’ share buybacks and time-to-time dividend hikes demonstrate its commitment to driving shareholder value alongside boosting shareholders’ confidence in the stock.
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. Notably, in the third quarter of 2022, T-Mobile, AT&T and Verizon accounted for 40.9%, 28.8% and 20.1%, 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 might 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.
The Zacks Rank #3 (Hold) stock has gained only 3.5% in the quarter-to-date period compared with the industry’s growth of 8.0%. You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Image Source: Zacks Investment Research
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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