SBA Communications' SBAC portfolio is well-positioned to gain from wireless carriers’ high capital spending for network expansion amid growth in mobile data usage. The long-term leases with its tenants assure stable revenues. Also, portfolio expansion moves, domestically and internationally, are encouraging.  However, customer concentration and consolidation in the wireless industry are key near-term concerns.

The company’s shares have risen 16.1% over the past six months compared with the industry’s upside of 13.3%.

Analysts seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for SBAC’s 2024 funds from operations (FFO) per share moving marginally northward over the past two months to $13.24.

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What’s Aiding SBAC?

With increasing smartphone adoption, greater broadband demand and plans for 5G service worldwide, wireless service providers and carriers have been deploying additional equipment for existing networks to enhance network coverage and capacity. SBA Communications’ portfolio of extensive infrastructure assets is well-poised to capitalize on this upbeat trend.

SBAC has a resilient and stable site-leasing business model. The company generates most of its revenues from long-term (typically 5-10 year) tower leases that have built-in rent escalators. With high operating margins, its tower-leasing business remains attractive.

SBAC continues to expand its tower portfolio and seek new growth opportunities through expansion in domestic and international markets. In the first nine months of 2024, the company acquired 179 towers and related assets. In the third quarter of 2024, it also built 147 towers. Such portfolio expansion efforts will position SBA Communications to leverage secular trends in mobile data usage and wireless spending growth across the globe.

SBAC has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 21.43%. Given its solid operating platform, decent financial position and lower-than-industry dividend payout rate, the dividend distribution is expected to be sustainable over the long run.

What’s Hurting SBAC?

The company has a high customer concentration, with T-Mobile TMUS, AT&T T and Verizon VZ accounting for the majority of its domestic site-leasing revenues. In the third quarter of 2024, T-Mobile, AT&T and Verizon accounted for 38%, 29.7% and 20.1%, respectively, of SBAC’s domestic site-leasing revenues.

Therefore, the loss of any of these customers, consolidation among them or a reduction in network spending might hurt the company’s top line significantly.

SBA Communications has a substantially leveraged balance sheet, with $12.4 billion of total debt and net debt to the annualized adjusted EBITDA leverage of 6.4X as of the end of the third quarter of 2024. The high amount of debt is likely to keep SBA Communications’ financial obligations elevated.

Moreover, the company’s debt-to-capital ratio is higher than the industry average. A still elevated interest rate environment is likely to result in high borrowing costs for the company, affecting its ability to purchase or develop real estate.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Welltower WELL and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Welltower’s 2024 FFO per share is pegged at $4.26, suggesting year-over-year growth of 17%.

The Zacks Consensus Estimate for Cousins Properties 2024 FFO per share stands at $2.68, indicating an increase of 2.3% from the year-ago reported figure.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

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