SBA Communications Corporation ( SBAC Quick Quote SBAC - Free Report) enjoys 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 upcoming period.
Increased innovation, high mobile data usage, and adoption of data-driven mobile devices and applications, such as machine-to-machine connections, social networking and streaming of video, deployments of 5G networks and additional spectrum, have compelled carriers to advance their wireless networks.
In order to capture consumer demand and ride its growth curve over the long haul, the company continues the addition of sites to its portfolio. Over the years, SBA Communications has developed or acquired thousands of towers throughout Central and South America and across Canada. During the second quarter, the company acquired 57 communication sites. Subsequent to the second-quarter 2021 end, it purchased or agreed to purchase 1800 communication sites.
The site-leasing business model offers operational resilience with stable revenues. 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 looks attractive.
Furthermore, a robust balance sheet and operational strength provide flexibility to the company to be opportunistic regarding investment choices, share repurchases and dividend growth.
SBA Communications delivered better-than-expected results for the second quarter. The company’s results reflected robust operating performance in both its site-leasing and development business. Apart from this, cost-control measures and interest-rate savings supported the company to raise the full-year outlook.
Shares of this Zacks Rank #3 (Hold) company have gained 42.4% over the past six months, outperforming the
industry's rally of 20%. The trend in estimate revisions for 2021 funds from operations (FFO) per share also indicates a favorable outlook for the company as it has been revised marginally upward over the past month. You can see . the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here Image Source: Zacks Investment Research
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. Therefore, loss of any of the customers or consolidation among them or a reduction in network spending will have a significant material impact on the company’s top line.
Moreover, SBA Communications had $12 billion of total debt and leverage of 7.3X as of the end of the second quarter. High amount of debt will likely increase SBA Communications’ financial obligations. In addition, its debt-to-capital ratio is higher than the industry average. A high debt-to-capital ratio limits its strength to withstand the current crisis and any unexpected negative externalities in the future.