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It has been about a month since the last earnings report for SBA Communications . Shares have added about 4.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is SBA Communications due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
SBA Communications' Q2 AFFO Beat, Revenues Fall Y/Y
SBA Communications reported second-quarter 2024 adjusted funds from operations (AFFO) per share of $3.29, beating the Zacks Consensus Estimate by a whisker. Moreover, the figure marked a rise of 1.5% from the prior-year quarter.
Results reflected a marginal improvement in site leasing revenues. It continues to benefit from the addition of sites to its portfolio. However, lower revenues posted by site development hurt the results to some extent. The company lowered its 2024 outlook.
Quarterly total revenues decreased 2.7% year over year to $660.5 million. The figure also missed the Zacks Consensus Estimate of $664.5 million.
Brendan Cavanagh, president and CEO of the company, said, “New business execution in the U.S. continued at a similar pace to the levels we have experienced the last few quarters, and internationally, we saw a pick-up in new leasing activity that will increase the full year revenue contribution from new leases and amendments.”
Quarter in Detail
Site-leasing revenues increased marginally year over year to $626.5 million. Quarterly Site-leasing revenues consisted of domestic site-leasing revenues of $463.2 million and international site-leasing revenues of $163.3 million. The domestic cash site-leasing revenues came in at $457.4 million, growing 1.6% year over year. International cash site leasing revenues came in at $163.6 million, decreasing 2.9% year over year.
However, site development revenues decreased 35% year over year to $34 million.
The site-leasing operating profit was $512.3 million, marking a marginal increase year over year. Moreover, 98.7% of SBA Communications’ total operating profit in the quarter came from site leasing.
The overall operating income rose 46.9% to $354.5 million.
Adjusted EBITDA totaled $467.1 million, decreasing 1%, while the adjusted EBITDA margin increased to 71.3% from 70.3% in the prior-year quarter.
Portfolio Activity
In the second quarter, SBA Communications acquired 117 communication sites for a total cash consideration of $26.5 million. The company also built 100 towers during this period. It owned or operated 39,744 communication sites as of Jun 30, 2024, of which 17,461 were in the United States and its territories and 22,283 internationally.
SBA Communications also spent $13.3 million to purchase land and easements and extend lease terms. Total cash capital expenditure was $91.6 million in the reported quarter, of which $78.5 million represented discretionary and $13.1 million was non-discretionary.
Subsequent to the quarter’s end, SBA Communications purchased or is under contract to buy 106 communication sites for a total consideration of $49.3 million in cash. It expects to complete the acquisition by the end of the fourth quarter of 2024.
Cash Flow & Liquidity
In the second quarter, SBA Communications generated nearly $425.6 million of net cash from operating activities compared with the year-ago quarter’s $486.9 million.
As of Jun 30, 2024, it had $309.4 million in cash and cash equivalents, short-term restricted cash and short-term investments, up from $261.8 million recorded as of Mar 31, 2024. SBA Communications ended the quarter with a net debt-to-annualized adjusted EBITDA of 6.4X.
As of Jul 29, 2024, the company had $30 million outstanding under the $2 billion revolving credit facility.
In April 2024, SBA Communications repurchased 0.4 million shares of its Class A common stock for $93.9 million. After this, it had $204.7 million of authorization remaining under its $1 billion stock repurchase plan.
2024 Guidance Lowered
SBA Communications now expects AFFO per share in the range of $13.06-$13.43, down from the prior guided range of $13.09-$13.46.
Site-leasing revenues are now projected to be $2,507-$2,527 million, revised downwards from $2,517-$2,537 million guided earlier. Site-development revenue guidance range is revised downwards to $135 million and $145 million from the previous guidance of $140 million and $160 million.
Further, the adjusted EBITDA has been decreased to $1,876-$1,896 million from $1,889-$1,909 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
At this time, SBA Communications has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, SBA Communications has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
SBA Communications belongs to the Zacks REIT and Equity Trust - Other industry. Another stock from the same industry, SL Green , has gained 0.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
SL Green reported revenues of $135.56 million in the last reported quarter, representing a year-over-year change of -18.2%. EPS of -$0.04 for the same period compares with $1.43 a year ago.
For the current quarter, SL Green is expected to post earnings of $1.24 per share, indicating a change of -2.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.7% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for SL Green. Also, the stock has a VGM Score of D.
Zacks Investment Research
SBA Communications Corporation , headquartered in Boca Raton, Florida, is a leading independent owner and operator of wireless communications infrastructure with a presence in Central America, South America, Canada, and South Africa. Valued at a market cap of $24.4 billion, it primarily generates revenue through two segments: Site Leasing and Site Development.
Shares of this leading specialty REIT have underperformed the broader market over the past year. SBAC stock has gained 2.8% over this time frame, while the broader S&P 500 Index ($SPX) has rallied nearly 27.7%. In 2024, SBAC stock is down 9.9%, lagging behind SPX’s 18% rise on a YTD basis.
Narrowing the focus, SBAC stock has also lagged behind the iShares U.S. Digital Infrastructure and Real Estate ETF . The exchange-traded fund has returned about 17.7% over the past year and 16.1% on a YTD basis.
On Jul. 29, SBAC rose 1.5% following the Q2 earnings results. Its AFFO amounted to $354.3 million, or $3.29 per share, slightly beating analysts' $3.28 per share estimate. However, revenue came in at $660.5 million, slightly below the expected $664.5 million. For the full year, the company expects FFO between $13.06 and $13.43 per share, with revenue ranging from $2.64 billion to $2.67 billion.
For the current fiscal year, ending in December, analysts expect SBA Communications’ EPS to improve 4.9% year over year to $12.53 on a diluted basis. The company’s earnings surprise history is solid. It beat the consensus estimate in each of the last four quarters.
Among the 17 analysts covering SBAC stock, the consensus is a “Moderate Buy.” That’s based on 10 “Strong Buy” ratings, two “Moderate Buys,” and five “Holds.”
This configuration is less bullish than two months ago, with 11 analysts suggesting a “Strong Buy.”
On Aug. 14, Deutsche Bank Aktiengesellschaft analyst Matt Niknam increased the price target for SBA Communications from $230 to $240 while maintaining a “Buy” rating on the stock.
The mean price target of $240.06 represents a 5.1% premium to SBAC’s current price levels. The Street-high price target of $285 suggests an upside potential of 24.7%.
On the date of publication, Kritika Sarmah did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
Reporter Name | Krouse George R Jr |
Relationship | Director |
Type | Sell |
Amount | $71,363 |
SEC Filing | Form 4 |
On August 21, 2024, George R Jr Krouse, a Director at SBA Communications Corp, sold 325 shares of Class A Common Stock at a price of $219.58 per share, totaling $71,363. Following this transaction, Krouse directly owns 8,084 shares of the company's Class A Common Stock.
SEC Filing: SBA COMMUNICATIONS CORP [ SBAC ] - Form 4 - Aug. 23, 2024
Shares of SBA Communications SBAC have risen 13.3% over the past three months compared with the industry's upside of 12.4%.
Last month, SBAC reported second-quarter 2024 adjusted funds from operations (AFFO) per share of $3.29, which beat the Zacks Consensus Estimate by a whisker. Results reflected a decent improvement in site leasing revenues. However, lower revenues posted by site development hurt the results to some extent.
Analysts also seem bullish on this Zacks Rank #3 (Hold) company, with the Zacks Consensus Estimate for its 2024 FFO per share revised upward over the past month to $13.22.
Let us decipher the factors behind the surge in the stock price and check whether this trend will last or not.
SBA Communications’ extensive and geographically diverse wireless communication infrastructure portfolio is well-positioned to gain from wireless carriers’ high capital spending for network expansion amid the growing mobile data usage and accelerated 5G network deployment efforts.
SBA Communications has a resilient and stable site-leasing business model. The company generates most of its revenues from long-term (typically five to 10 years) tower leases that have built-in rent escalators. With high operating margins, its tower-leasing business remains attractive.
SBA Communications also offers wireless service providers assistance in developing and maintaining their own networks. The company’s services include site identification and acquisition as well as obtaining zoning approvals and permitting networks representing all technologies.
It also provides a broad range of cell site equipment installation, optimization and integration services. SBA Communications’ extensive site development experience will propel its growth over the long term.
SBA Communications continues to expand its tower portfolio and seek growth opportunities. During the six months ended Jun 30, 2024, the company acquired 128 towers and related assets. In the second quarter of 2024, it also built 100 towers. Such portfolio expansion efforts will position SBA Communications to leverage secular trends in mobile data usage and wireless spending growth worldwide.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and SBA Communications remains committed to that. The company has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 22.42%. Given SBA Communications’ decent financial position and a lower-than-industry dividend payout rate, the dividend distribution is expected to be sustainable over the long run.
However, the high customer concentration and the ongoing consolidation in the wireless industry are concerns for the company’s top-line growth. Elevated interest rates add to the company’s woes.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Essex Property Trust ESS 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 Essex Property Trust’s 2024 FFO per share is pegged at $4.82, up 3.26% year over year.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.66, up 1.53% year over year.
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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