SBA Communications Enjoys Solid Leasing, High Debt Ails
SBA Communications Corporation SBAC is likely to benefit from the solid cell-tower fundamentals amid the coronavirus outbreak-induced stay-at-home environment, which is accelerating the need for the development of faster 5G networks. Nonetheless, the company’s high-leveraged balance sheet will likely increase its financial obligations.
Notably, there has been a spike in cellular network usage and network-intensive applications for video conferencing and cloud services as companies have embraced remote working lifestyles amid the pandemic. This is propelling wireless carriers to increase investments to expand and enhance their networks.
In fact, the new T-Mobile is likely to invest in upgrades across its new portfolio to meet the required 5G coverage goal, thereby, driving domestic organic bookings for SBA Communications in the near term.
Hence, to capitalize on this trend, the company is expanding its tower portfolio into select international markets, with high growth characteristics, backed by a decent balance sheet and sufficient liquidity.
Further, long-term (typically 5-10 year) tower leases with built-in rent escalators provide the company with stable revenues. Moreover, wireless service providers continue to lease additional antenna space on its towers amid the increase in network use, data transfer, network expansion and network coverage requirements. This is expected to drive site-leasing revenue growth over the long term.
However, customer concentration remains high for SBA Communications. Loss of any of the top customers, consolidation among them or a reduction in network spending will lead to a significant material impact on the company’s top line.
Moreover, it had $10.7 billion of total debt as of the second-quarter end. Such a high amount of debt will likely increase the company’s financial obligations and limit its strength to withstand the current crisis as well as any unexpected negative externalities in the future.
Lastly, the low profitability of tower operations in emerging markets, relative to that in the mature domestic market, is concerning.
However, shares of this Zacks Rank #3 (Hold) company have gained 15.3% over the past year against the industry’s decline of 7.3%.
Stocks to Consider
Duke Realty Corporation’s DRE Zacks Consensus Estimate for 2020 funds from operations (FFO) per share has been revised 3.5% upward to $1.49 over the past month. The company currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sabra Healthcare REIT, Inc.’s SBRA FFO per share estimates for the ongoing year have been revised 1.8% upward to $1.71 over the past week. The company currently carries a Zacks Rank of 2.
Stag Industrial, Inc. STAG FFO per share estimates for 2020 have been revised 1.1% upward to $1.86 over the past month. It currently carries a Zacks Rank of 2.
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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