An upsurge in the stock price of a company indicates high performance and strong growth prospects. These companies are financially strong and provide good returns to investors. In this article, I have picked two such companies from the technology sector, which provided good returns in past to their investors. Both companies are large cap companies expanding to increase their market presence. Are these companies capable of providing stable returns into the future?
Targeting South American market as an expansion plan
SBA Communications’ (NASDAQ:SBAC) towers outside the U.S. contribute only 14.9% of its total towers. With its low international exposure, the company is focusing on expanding its footprint outside the U.S. It currently has over 800 towers in Brazil, a market which will experience an annual growth rate of 5.3% over a period of the next three years. Brazil’s telecommunication market will increase from $73 billion in 2011 to $100 billion in 2017.
- Warning! GuruFocus has detected 5 Warning Signs with SBAC. Click here to check it out.
- SBAC 15-Year Financial Data
- The intrinsic value of SBAC
- Peter Lynch Chart of SBAC
Therefore, SBA entered into an agreement with a Brazilian telecom company Oi SA, and the deal is expected to close by the end of this year. SBA communication will pay $302 million to the Brazilian company, and in return, it will have access to Oi SA’s 2,113 towers in Brazil. SBA funded this agreement with available cash and available credit facility. These towers will contribute $32.2 million of revenue and $67.3 million of cash flows by the end of 2014. In addition, company’s total tower count will reach to 20,000 globally.
With this deal, Oi SA signed a long-term agreement with SBA to lease and rent the antenna space required within these towers. This will help in meeting the rising smartphone demand in Latin America as the market continues to attract providers. Currently, there are approximately 1.15 tenants per tower, which is below the average of 1.5 tenants per tower in Latin America. This low tenant ratio and smartphone usage will generate further growth opportunity for Oi SA to attach more tenants in these towers.
The company’s site leasing segment is a major revenue driver contributing nearly 97% of its total revenue. This segment reported growth of 58% in the first quarter year-over-year. To continue to enhance its leasing revenue, it planned to upgrade its tower sites with 4G network. By now, it has upgraded 40% of its total sites and will upgrade 90,000 towers with 4G network by the end of 2014.
With the high demand for 4G network, its strong client base like Verizon and AT&T will be shifting their networks towards 4G. This will also increase the company’s site leasing revenue from $$1.1 billion last year to by $1.2 billion this year.
Segments driving the revenue
Finisar’s (NASDAQ:FNSR) datacom segment generated $306 million in revenue last quarter representing 25.7% quarter-over-quarter growth. It also recorder seventh sequential quarter growth it seems Finisar is now getting into a regular habits to records growth and this has made it favorable among its investors. Organizations are growing their networks; the increasing number of applications requires considerable bandwidth to support the transfer of large data, video, and audio files.
Using 10GbE optical links provides sufficient bandwidth to support these bandwidth-intensive applications at a lower cost. Gartner forecasted about a 10% compounded annual growth rate within the 10GbE switch market in the next five years, providing growth potential for Finisar thanks to its product portfolio.
"Demand for transceivers operating at 10Gb/s and faster continued to be strong during the quarter. Demand was also strong for our transceivers for LTE wireless applications. We continue to develop and release new products, which we expect will enable Finisar to expand our market share and continue to grow revenue," said Eitan Gertel, Finisar's Chief Executive Officer.
Finisar’s Wavelength Selective Switch, or WSS, technology provides a competitive technology to mobile network operators since it bases WSS on Flexgrid technology. This technology helps a network operator use its existing infrastructure to carry all future transmission formats at whatever bandwidth is required.
Infonetics forecasted that the WSS component market will rise to $500 million in 2016 as compared to $300 million in 2012. This competitive technology will help the company gain share in the increasing WSS component market. Analysts expect Finisar’s telecom segment revenue to be $ 1.36 billion this year and $1.49 billion next year.
With the strong opportunity available in the market, all the above companies are expanding to increase their market presence, leading towards higher profits. Hertz is taking cost-initiative methods and is expanding in off-airport business segment. It is also shifting from brick and mortar to video kiosks, furthering its cost-effective measures.
SBA and Oi SA are already in an agreement for enhancing SBA's presence in Brazil. Further, SBA is also converting its tower sites to 4G LTE, which is in huge demand, and will increase its site leasing segment. Therefore, in the long run all three companies will be strong performers and will continue to drive the shareholders return higher. So, I recommend a long term buy for all three companies.