A Soaring 5G Stock Most People Have Never Heard of

SBA Communications Corporation Is an Overlooked 5G StockLooking for 5G Stocks? Read This

With more and more 5G devices rolling out, there’s no shortage of 5G stocks for investors to consider. From wireless carriers to smartphone makers, to chip makers, to app developers, to Internet companies, there are plenty of players that are set to capitalize on our society’s increasing adoption of 5G technology.

But there is one 5G stock that has largely remained under the radar: SBA Communications Corporation (NASDAQ:SBAC). The company is not a wireless carrier. Nor does it make any chip or gadget. And yet, it’s well positioned to prosper in the 5G era.

Let me explain.

Headquartered in Boca Raton, Florida, SBA Communications owns and operates wireless communications infrastructure, including buildings, distributed antenna systems (DAS), rooftops, small cells, and towers. (Source: “SBA Communications Corporation Reports First Quarter 2020 Results; Updates Full Year 2020 Outlook; and Declares Quarterly Cash Dividend,” SBA Communications Corporation, May 5, 2020.)

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Right now, the company has over 30,000 communications sites in 14 markets throughout the Americas and South Africa.

And while most people have never heard of SBA Communications Corporation, your wireless carrier is likely very familiar with it.

In fact, in the U.S., the company’s top customers in the first quarter of 2020 were AT&T Inc. (NYSE:T), T-Mobile US Inc (NASDAQ:TMUS), Sprint Corporation (before it was acquired by T-Mobile on April 1, 2020), and Verizon Communications Inc. (NYSE:VZ). (Source: “Supplemental Financial Data,” SBA Communications Corporation, last accessed July 9, 2020.)

Together, they accounted for more than 90% of SBA Communications’ domestic site leasing revenue in the first quarter.

Internationally, SBA is serving major communications companies as well. Its top three international customers in the first quarter were Oi S.A. (the largest fixed telephone operator and the fourth-largest mobile telephone operator in Brazil), Telefonica S.A. (NYSE:TEF) (a Spanish telecommunications company that serves 344 million customers in Europe and Latin America), and America Movil, S.A.B. de C.V. (NYSE:AMX) (a Mexican telecommunications company that has 283 million wireless subscribers around the world).

These three companies are responsible for generating over 60% of SBA’s first-quarter international site leasing revenue. (Source: Ibid.)

Now, as wireless carriers start to deploy 5G coverage, the demand for wireless communications infrastructure could see a substantial increase. The significant network investment that carriers are making in 5G could be a major catalyst for SBA Communications Corporation.

Commenting on the T-Mobile and Sprint merger, SBA’s president and chief executive officer Jeffrey Stoops said, “In order to meet their required 5G coverage goals, the new T-Mobile will require meaningful upgrades across their combined portfolio, deploying both 2.5 gigahertz spectrum and 600 megahertz spectrum. Post-merger discussions and early activity are underway.” (Source: “SBA Communications Corp (SBAC) CEO Jeffrey Stoops on Q1 2020 Results – Earnings Call Transcript,” Seeking Alpha, May 5, 2020.)

Stoops also talked about the other two major U.S. wireless carriers’ future 5G investments:

Verizon and AT&T are each active in upgrades and network expansion for both 4G and 5G as well.

In addition, AT&T’s FirstNet build out continues in full swing and deployments of AWS 3 and WCS spectrum continue. We anticipate that both the CBRS and C-band spectrum auction scheduled for later this year will be highly competitive, and ultimately, a material driver of incremental growth for the tower industry, particularly the C-band auction. This critical mid-band spectrum is expected to be a key component of future 5G network deployments, and it will require the deployment of new equipment at many of our customers’ existing macro sites.

(Source: Ibid.)

A Reliable 5G Stock?

The best part is, when it comes to SBA’s business, competition is limited.

You see, building a cellphone tower is costly. And even if you have the money, you need to get the regulatory approval to build one. Residents often don’t want a cellphone tower to stand in their neighborhood, and protests are not unusual during construction. As a result, existing cellphone towers—like the ones owned by SBA Communications Corporation—are highly sought after.

At the same time, the business is recurring in nature. To give you an idea, SBA earned total site leasing revenue of $492.0 million in the first quarter of 2020, of which $435.0 million was considered core recurring cash lease revenue. (Source: (Source: “Supplemental Financial Data,” SBA Communications Corporation, op. cit.)

With recurring business accounting for nearly 90% of the company’s site leasing activity, SBAC stock could be worth considering for risk-averse investors.

It also helps that the company has a high-quality customer base, which is very important in this challenging economic environment. The COVID-19 pandemic has led to many businesses struggling.

But SBA’s customers are generally large communications companies with established market positions. These companies provide essential services in their operating markets and are not going anywhere. As a result, SBA Communications should have no problem surviving a recession.

According to SBA’s latest earnings report, management expects the company to generate $1.93 billion to $1.95 billion in site leasing revenue in full-year 2020. To put that in perspective, SBA Communications earned $1.86 billion in site leasing revenue in 2019. (Source: SBA Communications Corporation, May 5, 2020, op. cit.)

So, if the company reaches its guidance range, it would have grown its business despite the challenging socioeconomic environment this year.

SBA Communications Corporation (NASDAQ:SBAC) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

At the end of the day, there are 5G stocks with more exciting businesses than a cellphone tower owner. But SBA Communications still stands out due to the critical nature of its infrastructure assets and durable business model.

As you can see from the above chart, SBAC stock has already delivered serious returns to early investors. The move to 5G could help that trend continue.