SBA Communications Corporation: Wall Street Is Bullish on This Overlooked 5G Stock

SBA Communications Corporation Raises Full-Year Guidance

With a market cap of $31.5 billion, it would be tough to say that SBA Communications Corporation (NASDAQ:SBAC) is unfamiliar to anyone interested in 5G stocks. But as a 5G infrastructure stock, it often gets overshadowed by other flashier tech stocks.

It would be a mistake for investors to not pay close attention to SBA Communications stock. The company has a huge presence in the U.S. and internationally.

Moreover, since the start of 2021, SBA Communications Corporation has announced several notable accomplishments, including the acquisition of transmission tower wireless licenses from PG&E Corporation (NYSE:PCG) and the execution of new master agreements with both Verizon Communications Inc. (NYSE:VZ) and Dish Network Corp (NASDAQ:DISH).

The increased activity has allowed SBA Communications Corporation to raise its 2021 full-year services outlook, and it gives the company tremendous confidence about its organic leasing growth over the next few years. 

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Management isn’t alone with its bullish call. Wall Street is on board, too. Of the 12 analysts following SBAC stock, 10 have a “Buy” rating and just two have a “Hold” rating.

From the analysts who are bullish on SBA Communications stock, the average price target over the next 12 months is $331.83, which represents a 15.5% increase from the current level. Their high share-price forecast over the next 12 months is $352.00, which suggests additional 22.5% upside.

SBAC Stock Overview

SBA Communications is a leading independent owner and operator of wireless communications infrastructure, including towers, buildings, rooftops, distributed antenna systems (DAS), and small cells. (Source: “About SBA,” SBA Communications Corporation, last accessed May 20, 2021.)

Based on its market capitalization, the company is one of the largest real estate investment trusts (REITs).

SBA Communications’ operating segments include site leasing and site development.

In its site leasing business, SBA Communications Corporation leases antenna space to wireless service providers on towers that it owns or operates. It also manages rooftop and tower sites for property owners under various contractual arrangements.

As of March 31, 2021, the company owned or operated 33,711 communication sites, 17,259 of which are located in the U.S. and its territories, and 16,452 of which are located internationally.

Subsequent to the first quarter of 2021, SBA Communications Corporation had purchased or agreed to purchase 413 communication sites for an aggregate consideration of $110.2 million in cash. The majority of these acquisitions will be completed by the end of the third quarter.

The company’s site development business helps wireless service providers and operators develop their own networks through site acquisition, zoning, construction, and equipment installation.

SBA Communications Corporation’s principal operations and offices are in the U.S., Brazil, Canada, Argentina, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Nicaragua, Panama, Peru, and South Africa.

For income-starved investors, SBA Communications stock pays an annual dividend of $2.32 per share, or $0.58 per share quarterly. This represents an annual dividend yield of 0.8%.

$973-Million Agreement With PG&E Corporation

In early February, SBA Communications announced that it had entered a $973.0-million deal to lease electric towers from PG&E Corporation for its wireless technology. (Source: “As Part of its Focus on Financial Health and Customer Affordability, PG&E Agrees to $973 Million Sale of Transmission Tower Wireless Licenses to SBA Communications Corporation,” SBA Communications Corporation, February 2, 2021.)

The license agreements apply to more than 700 towers, which PG&E currently leases to wireless providers under 100-year leases.

Through the agreement, SBA Communications Corporation can also sub-license space on up to 28,000 transmission towers across PG&E Corporation’s network for 15 years. The 28,000 towers do not currently receive any subleasing revenue.

“This transaction adds a significant portfolio of high quality, exclusive locations to our outstanding existing U.S. macro tower portfolio and SBA expects these assets to generate approximately $39.5 million in Tower Cash Flow in their first full year in our portfolio,” said Jeff Stoops, president and CEO. (Source: Ibid.)

Tapping into unused utility infrastructure to deploy wireless gear seems like a no-brainer. But it’s not as easy as it seems. Working on transmission poles is both difficult and dangerous and, given the high levels of electricity, there aren’t many businesses that employ people with that kind of specialized skill set.

Through this agreement, PG&E retains control over its safety protocols and will continue to regularly inspect and maintain the towers.

This deal cements the possibility that other electric companies could enter the U.S wireless landscape. And because utility poles are ubiquitous across the landscape, they could help deploy 5G technology to under-served rural areas.

Strong Start to 2021

For the first quarter of 2021, SBA Communications announced that its revenue increased 6.1% year-over-year to $584.7 million. (Source: “SBA Communications Corporation Reports First Quarter 2021 Results; Updates Full Year 2021 Outlook; and Declares Quarterly Cash Dividend,” SBA Communications Corporation, April 26, 2021.)

The company’s site leasing revenue was up by 2.6%, at $505.1 million, while its site development revenue was up by 76.6%, at $43.6 million.

SBA Communications Corporation reported a first-quarter net loss of $11.7 million, or a $0.11 loss per share, compared to a first-quarter 2020 net loss of $127.9 million, or $1.14 loss per share.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $390.1 million, a 5.4% increase over the prior-year period.

Its adjusted funds from operations (AFFO) were $286.3 million, or $2.58 per share, a 10.2% increase over the first-quarter 2020 AFFO of $259.8 million, or $2.28 per share.

During the first quarter of 2021, SBA Communications Corporation repurchased 700,000 shares of its common stock for $168.9 million at an average price of $258.33 per share under its $1.0-billion stock repurchase plan. The company has $475.1 million of authorization remaining under the plan.

During the first quarter, SBA Communications also declared a cash dividend of $0.58 per share.

Business Outlook

Thanks to a strong start to 2021, SBA Communications Corporation raised its full-year guidance. For the year, the company expects to report:

  • Total revenue of $2.22 billion to $2.26 billion, up from the company’s February 2021 forecast of $2.17 billion to $2.21 billion.
  • Site leasing revenue of $2.06 billion to $2.08 billion, up from previous guidance of $2.03 billion to $2.05 billion
  • Site development revenue of $155.0 million to $175.0 million, up from previous guidance of $140.0 million to $160.0 million
  • AFFO per share of $10.15 to $10.57, up from previous guidance of $10.00 to $10.41.

Analyst Take

SBA Communications Corporation is an overlooked 5G infrastructure company with tremendous long-term growth potential.

It has a huge international presence, and, thanks to the explosion in mobile data usage, carriers will need to continue to invest in their networks.

In addition to raising their full-year guidance, management said SBA Communications’ pipeline for new activity is its strongest since the rollout of Long-Term Evolution (LTE) technology, and hinted that the growth could accelerate through 2023.