SBA Communications Corporation (SBAC) is a prominent independent owner and operator of wireless communications infrastructure, mainly including tower structures that support antennas used for wireless communications.
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The company possesses 34,177 towers which it leases to multiple wireless telecom providers. SBA also owns a site development business, via which it assists telecom providers in growing and supporting their own wireless service networks.
Recent Developments
SBA Communications’ latest earnings results came in quite strong, with the company posting record revenues of $595.3 million, 11.1% higher year-over-year. The increase was driven by a larger portfolio of towers and more elevated leasing activity.
During the quarter, SBA acquired 59 communication sites for a total cash consideration of $38.4 million and also constructed 88 towers on its own.
Adjusted funds from operations (AFFO) also increased by 11% to $310.8 million. On a per-share basis, AFFO grew 12.9% year-over-year to $2.81, boosted by continuous buybacks. Around $263.6 million worth of stock was repurchased during this period.
Moving into FY2022, the company’s prospects remain strong, backed by incremental growth initiatives. Specifically, subsequent to the quarter-end, SBAC purchased or is under contract to purchase 371 communication sites for an aggregate consideration of approximately $137.1 million, implying its growth pipeline is well in order.
Reinforced by strong operating momentum, management shared a strong FY2022 outlook, expecting site leasing revenues to land between $2.24 and $2.25 billion and AFFO/share to land between $11.48 and $11.85.
Dividend & Valuation
Supported by its robust profitability, the company announced a hike to its quarterly dividend by 22.4% to a rate of $0.71.
SBA Communications initiated its dividend payments in 2019. The company is now rapidly expanding its dividend as its earnings provide ample leverage to do so. In my view, the company should grow its dividend by an average rate of 20% in the medium-term, as it slowly pays out a larger portion of its bottom line to shareholders. For context, even following such a big dividend hike, the stock’s payout ratio stands at just 24% based on the midpoint of management’s AFFO/share estimate of $11.67.
According to this number, the stock is also trading at a (forward) P/AFFO of 28.2. While the company numbers several qualities, including recession-proof cash flows and predictable growth prospects ahead, I find this multiple slightly rich. In my view, the stock would be more fairly valued at a P/AFFO of 23 based on its overall investment case.
Wall Street’s Take
Turning to Wall Street, SBA Communications has a Strong Buy consensus rating, based on nine Buys and one Hold assigned in the past three months. At $382.30, the average SBA Communications price target implies 19.14% upside potential.
Conclusion
SBA Communications continues to execute successfully on its business expansion plan, regularly extending its recurring cash flows and tower site coverage. While I believe the company will keep growing its AFFO/share, and (especially) its dividend per share rapidly, investors are likely overpaying for the stock at its current levels. For this reason, I am currently neutral on SBA Communications.
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