SBA Earnings: Amid Reduced Carrier Spending, Results Remain Good, and Management Is Opportunistic

SBA’s SBAC 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.

In the U.S., same-tower sales growth stayed close to 5% in the quarter despite tower decommissioning from Sprint that we suspect shaved more than 1 percentage point of growth. As with its peers, SBA confirmed the slower carrier spending environment and said its customer backlog is down. We project a slowdown in same-tower sales growth in 2024, when Sprint churn should remain at a similar level to 2023. However, between fixed annual escalators, some master lease agreements that require incremental annual investment, potential upside from Dish, and the amount of spectrum that major carriers still have not deployed, we expect same-tower sales growth will stay above 3% annually throughout our five-year forecast despite a modest level of Sprint churn occurring each year through 2026.

Management was more enthusiastic about international markets, saying customers were more active than they expected. We don’t yet see this pickup in the results, as the 5% international same-tower sales growth was generally in line with what we expected, but it should bode well for future quarters.