Company Reports

SBA Communications focuses exclusively on towers and has some geographic diversification. We like that it’s now taking a more measured approach to financial leverage and, in our view, a better approach to capital allocation. We like its business and think it will continue to grow at a decent clip without requiring much incremental investment for organic growth.

SBA Communications' underwhelming first-quarter leasing results were generally consistent with the tepid 2024 outlook the firm provided last quarter. Management slightly reduced the leasing outlook further, though we attribute that to slightly higher Oi churn in Brazil following a recent judicial resolution and the strong US dollar rather than weaker demand. We believe we are in a lull for carrier tower investment rather than a new long-term norm. As SBA manages the difficult macroeconomic environment, we applaud its timing of share repurchases while still bringing down debt. We’re maintaining our $250 fair value estimate.

SBA had a solid fourth quarter, but it said the US leasing environment remains weak amid a pullback in carrier spending. While this will further diminish near-term growth that is already facing headwinds from Sprint contract expirations, we’re encouraged by the subtle pivot we perceive in company strategy following the CEO transition on Jan. 1. We reduce our fair value estimate to $250 per share from $260 after adjusting our forecast, but qualitatively we’re now more comfortable with SBA than we had been in the past, when its strategy was to keep debt leverage very high in order to repurchase stock without regard to valuation.

SBA focuses exclusively on towers and has some geographic diversification, and we like that it’s now taking a more measured approach to financial leverage, and, in our view, taking a better approach to capital allocation. We like its business and think it will continue to grow at a decent clip without requiring much incremental investment for organic growth.

SBA’s third-quarter results showed very little impact from the reduced network investment among U.S. wireless carriers, and we maintain that fears of a dramatic tower business deterioration are unfounded. We expect the slowdown in carrier spending will be only slightly more apparent in 2024. While SBA continued operating its business well in the third quarter, it finally—in our view—chose to buy back shares at the right time. SBA has not been our favorite tower stock over the past several years, but we are increasingly pleased with how management is running the business, and we think, even after a big bounce off the recent lows, the stock is materially undervalued. We’re maintaining our $260 fair value estimate.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use very high financial leverage for stock buyback purposes provides unnecessary risk and ultimately keeps it from deepening its presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

After a long stretch of overvaluation, sentiment around the wireless tower industry has swung the other way. Each of the five independent tower firms we cover globally is now undervalued relative to our fair value estimates and trading in a 4- or 5-star range. Though the stocks have been volatile, especially around interest rate movements, we haven’t seen much change to the companies’ fundamentals. We believe tower firms have long-term secular tailwinds, great business models that include contractual recurring revenue with annual escalators, and narrow moats. In our view, the market has presented a compelling opportunity.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use very high financial leverage for stock buyback purposes provides unnecessary risk and ultimately keeps it from deepening its presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

SBA experienced a similar second quarter as its peers, with the company posting solid U.S. results while seeing a reduction in carrier activity that will likely cause a slowdown in the coming quarters. Still, the company raised its full-year financial guidance on the top- and bottom lines, and we have become more comfortable with the stock considering the measured approach management is now taking with debt management and a recently signed long-term master lease agreement with AT&T. We’re maintaining our $260 fair value estimate and believe the stock is undervalued.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use very high financial leverage for stock buyback purposes provides unnecessary risk and ultimately keeps it from deepening its presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

SBA’s first quarter showed no indication of the slowdown in U.S. tower leasing that we’ve been expecting for 2023, although we still expect growth to slow throughout the year. Still, SBA raised its full-year outlook and cited specific reasons it believes an extended runway of strong U.S. leasing growth remains. We’re raising our fair value estimate to $260 from $255, but see the stock as fairly valued.

SBA concluded 2022 with another strong quarter of sales and leasing activity, but slowing U.S. carrier spending led the firm to guide to slower growth in 2023. We saw no surprises and are raising our fair value estimate to $255 from $250, leaving the stock in 3-star territory and finally trading at levels closer to historical EBITDA and adjusted funds from operations multiples.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use very high financial leverage for stock buyback purposes provides unnecessary risk and ultimately keeps it from deepening its presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

SBA Communications reported an excellent third quarter that was generally solid in all aspects, and the firm raised its full-year outlook across all metrics. More encouraging, management didn’t give any indication that it anticipates a slowdown in 2023, as carriers’ spending plans and comments from other tower companies might imply. We’re not materially changing our 2023 forecast, as we think the stronger-than-anticipated close to 2022 is largely related to an earlier-than-expected closing of a big tower acquisition in Brazil and a delay in some churn the firm expects. We’re maintaining our $250 fair value estimate.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use financial leverage so aggressively provides unnecessary risk and ultimately keeps it from deepening it presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use financial leverage so aggressively provides unnecessary risk and ultimately keeps it from deepening it presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

SBA Communications had another strong quarter and continued to convey significant optimism for the U.S. tower activity, saying its backlog for new leases has never been stronger. It also continued growing its international presence through acquisition, this time with the announcement of a significant tower acquisition in Brazil, already its biggest international market. Despite the enthusiasm, organic growth in the U.S. during the quarter was materially lower than the rates regularly achieved a few years ago. Given the firm’s bigger size and the type of spectrum (midband) now being deployed, we don’t expect similar growth rates to return. We expect SBA to continue performing very well, but we think the stock is overvalued relative to our new $250 fair value estimate (a $5 increase).

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use financial leverage so aggressively provides unnecessary risk and ultimately keeps it from deepening it presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.

SBA’s first-quarter sales exceeded FactSet consensus estimates, and the firm raised its full-year outlook. While the fundamentals were good, and management reiterated how strong the leasing environment is in the United States, the beat and raise were largely due to currency tailwinds, a benefit from higher inflation, timing of Sprint churn, and non-recurring site development revenue. None of these dynamics are indicative of better long-term prospects, but the near-term financial strength—which the new outlook implies will add about 250 basis points to 2022 sales growth—leads us to raise our fair value estimate to $245 from $240. We expect SBA’s good performance to continue in what we believe is an ideal environment, but we don’t expect its business to materially accelerate or return to growth levels achieved a few years ago.

SBA focuses exclusively on towers and has some geographic diversification, but we think its strategy to use financial leverage so aggressively provides unnecessary risk and ultimately keeps it from deepening it presence in several of its developing markets. That said, we like its business and think it will continue to grow at a fast clip, albeit not to the same extent as rival American Tower.