SBA Communications Corporation ( SBAC Quick Quote SBAC - Free Report) is seeing high demand for its tower assets, as wireless service providers continue to advance their wireless networks. However, a highly leveraged balance sheet limits its ability to withstand any unexpected negative externalities in the future.
High mobile data usage, increased innovation, and adoption of data-driven mobile devices and applications such as machine-to-machine connections, social networking and streaming of video, and deployments of 5G networks have compelled carriers to advance their wireless networks.
Notably, a ramp in 5G-related investments, the timing of C-Band spectrum activity from some large customers, and initial leasing contributions from the Dish agreement are projected to increase SBA Communications’ leasing revenues in the ongoing year.
Amid the tailwinds, the company is also expanding its portfolio on the back of acquisitions. Subsequent to the first-quarter 2021 end, it purchased or agreed to purchase 413 communication sites for $110.2 million. The majority of the transactions is expected to close by the end of third-quarter 2021 and will aid the company to capitalize on the wireless use potential of the assets.
Moreover, a robust balance sheet and operational strength provide flexibility to the company to be opportunistic regarding investment choices, share repurchases and dividend growth.
In fact, the site-leasing business model offers operational resilience with stable revenues. Markedly, the company generates the majority of its revenues from long-term tower leases that have built-in rent escalators. Hence, with high operating margins, its tower-leasing business remains attractive.
Shares of this Zacks Rank #3 (Hold) company have gained 20.4% over the past three months compared with the
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However, the company has high customer concentration, with Verizon ( VZ Quick Quote VZ - Free Report) , AT&T ( T Quick Quote T - Free Report) and T-Mobile ( TMUS Quick Quote TMUS - Free Report) accounting for the majority of its domestic site-leasing revenues. Loss of any of the customers or consolidation among them or a reduction in network spending will lead to a significant material impact on the company’s top line.
SBA Communications had $12.1 billion of total debt and leverage of 7.6X as of the first-quarter end. First-quarter leverage ratio surpassed the company’s target of 7X-7.5X due to the PG&E acquisition deal. Moreover, its debt-to-capital ratio is higher than the industry average.
Also, the company’s international footprint and geographic diversification expose it to adverse foreign currency translation impact. In fact, foreign exchange headwind negatively impacted first-quarter revenues by $12.6 million on a year-over-year basis.
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