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Can You Hear What Steve Mandel Is Buying?
Posted by: Victor Selva (IP Logged)
Date: January 29, 2014 05:08PM
On Jan. 21, Steve Mandel (Trades, Portfolio) the founder of Lone Pine Capital, a long/short equity money manager, bought SBA Communications Corp. (SBAC) at an average price of $90.01 and currently holds 8,197,323 shares of the stock. So let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment opportunity.
Clusters & Acquisitions
SBA Communications owns and operates wireless communications towers in the United States, Canada, Costa Rica, El Salvador, Guatemala, Nicaragua, Panama and Brazil. It generates revenues from two businesses: site leasing and site development. The company plans to maintain its leadership position in the wireless communications towers by focusing on the site leasing business. Moreover, it plans to develop and build tower ownership in geographic clusters in North and Central America. Finally, in order to expand the company's sales and satisfy the major wireless service providers, the firm made several acquisitions.
In 2007, the company acquired AAT Communications Corp., a privately held company, for $1 billion in cash and 17 million shares of common stock. In 2008, it announced plans to acquire Optasite Holding Co. for $430 million. Finally, the deal was closed in the third quarter of the year. In the following quarter, it closed a second deal to acquire 340 wireless towers, five managed sites and five distributed antenna systems (DAS). In 2012, it was the turn of 2,300 towers from Mobilitie LLC for about $1.2 billion in cash and stock. In the same year, it completed the purchase of 3,256 towers from TowerCo II Holdings LLC for $1.2 billion in cash and 4.6 million SBAC common shares.
In terms of valuation, its price-to-book ratio of 25.5x indicates a premium versus the industry average of 2.12x and the price-to-sales ratio of 9.1x is above the industry average of 1.36x.
Earnings per share (EPS) increased in the most recent quarter compared to the same quarter a year ago, but it has demonstrated a positive trend in the last 10 years. We include in the next graph the stock price because EPS often lead the stock price movement.
We have to mention that compared to its closing price of one year ago, the stock price has jumped by 30%, exceeding the performance of the market.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has increased when compared to its ROE from the same quarter one year prior, but still remains negative. Currently, a negative ROE of 27.7% is far away from the industry median of 11.5%. Primary competitors for its site leasing activities are: American Tower Corporation (AMT) and Crown Castle International Corp. (CCI). The first independent tower company has a more attractive ratio of 17.8%.
Since the same quarter one year prior, revenues rose by 39.2% and helped to boost earnings per share. The expansion plan already seen as well as major efforts in marketing and technological innovation will be key drivers for profitability in the near future.
For a long-term perspective, I would advise fundamental investors to consider adding SBA Communications to their portfolios. Hedge fund gurus have also been active in the company. George Soros (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) have also invested in it.
Disclosure: Victor Selva holds no position in any stocks mentioned.
Guru Discussed: Steve Mandel: Current Portfolio, Stock Picks
Stocks Discussed: SBAC, AMT, CCI,