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SBA Communications: A Leading Operator of Wireless Communications Towers

August 26, 2014 | About:
ovenerio

ovenerio

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In this article, let's take a look at SBA Communications Corp. (SBAC), a $14.2 billion market cap company that 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.

Key drivers

SBA Communications aims to maintain its leadership in the wireless communications towers and so is focusing on the site leasing business.

The growth in smartphone demand and other data-centric mobile devices make carriers to continue need some upgrade in quality and capacity of their networks. Additionally, the tower firms’ offer by the company has minimal risk exposure.

Further, in order to expand through attractive regions, the firm focuses on building tower ownership in geographic clusters in North and Central America.

Moreover, company´s strategy of acquisitions was effective. In 2007, the company acquired AAT Communications Corp., a privately held company. In 2008, it acquired Optasite Holding Co. for $430 million. Later that year, 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. That year, it completed the purchase of 3,256 towers from TowerCo II Holdings LLC.

Companies such as AT&T (T) and Verizon (VZ) constitute a large portion of the firm's business, the AT&T/Leap Wireless merger will have no significant impact on SBA's revenue starting in 2016. Although it is the smallest of the three major tower firms, it also has the most growth upside.

Finally, Management has been thinking about its international expansion.

Revenues, margins and profitability

Looking at profitability, revenue growth by 18.22% led earnings per share increased in the most recent quarter compared to the same quarter a year ago (-$0.02 vs -$0.28). The gross profit margin is considered high, at about 72% and it has increased from the same quarter the previous year. But the net profit margin of -2.46% is in-line with the industry average.

Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.

Ticker

Company

ROE (%)

SBAC

SBA Communications

-15.66

AMT

American Tower Corporation

15.6

CCI

Crown Castle International Corp.

1.3

 

Industry Median

11.93

The company has a negative ROE which is lower than its peers. In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking at those levels or more, American Tower Corporation (AMT) could be the option. It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.

1409026150978.png

Relative Valuation

In terms of valuation, the stock sells at a price-to-book ratio of 35.73x indicates a premium versus the industry average of 3.2x while the price-to-sales ratio of 10.12x is above the industry average of 1.71x.

As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10,000 five years ago, today you could have $43,758, which represents a 34.3% compound annual growth rate (CAGR).

1409026119340.png

Final comment

We believe that the industry will continue to grow because carriers are now in the midst of their 4G deployment projects. The company is growing internationally, with assets in Canada, Central America and South America as well.

I believe that it offers the most attractive investment profile. I would recommend this stock for investor´s long-term portfolios.

Hedge fund gurus like Andreas Halvorsen (Trades, Portfolio), Jim Simons (Trades, Portfolio), Chris Davis (Trades, Portfolio) and Cuchk Akre added this stock to their portfolios in the second quarter of 2014.

Disclosure: Omar Venerio holds no position in any stocks mentioned

About the author:

ovenerio
We provide independent fundamental research and hedge fund and insider trading focused investigation.

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