Macro Tower Leasing And Market Exits Will Redefine Future Efficiency

Key Takeaways

• Robust leasing activities and site demand promise sustained revenue growth, while exiting unprofitable markets enhances capital allocation and boosts future margins.
  
• Share buyback initiatives could increase earnings per share and shareholder value, indicating a strong focus on returning capital to investors.
  
• Elevated churn, consolidations, and divestitures could dampen revenue growth, with macroeconomic uncertainties impacting capital allocation and future earnings.

Catalysts

A leading independent owner and operator of wireless communications infrastructure including towers, buildings, rooftops, distributed antenna systems (DAS) and small cells.

• The increased leasing backlog from new applications indicates robust future leasing revenue, as contracts signaled sustained growth and demand for macro tower sites.
  
• An uptick in domestic colocation leasing compared to amendments bodes well for earnings, as colocations generally provide larger revenue boosts.
  
• SBA Communications repurchased 583,000 shares and announced a $1.5 billion buyback plan, potentially increasing earnings per share and returning value to shareholders.
  
• Exit from less profitable international markets like Philippines and Colombia allows for more efficient capital allocation and could improve future net margins by focusing on higher-growth areas.
  
• Strong leasing activity and elevated CPI rates in some markets may lead to better lease escalations, benefiting revenue growth in international operations.

SBA Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SBA Communications's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 29.3% today to 34.5% in 3 years time.
• Analysts expect earnings to reach $1.0 billion (and earnings per share of $10.11) by about April 2028, up from $786.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.2 billion in earnings, and the most bearish expecting $809.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.5x on those 2028 earnings, down from 32.7x today. This future PE is greater than the current PE for the US Specialized REITs industry at 27.7x.
• Analysts expect the number of shares outstanding to grow by 0.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

SBA Communications Future Earnings Per Share Growth

Risks

• Elevated churn and carrier consolidations, particularly related to Sprint and international operations, may lead to lower net revenue growth over the upcoming years.
  
• The completion of the Millicom transaction and other acquisitions is contingent upon regulatory approvals and other requirements, which may delay anticipated revenue and cash flow contributions.
  
• Persistent macroeconomic uncertainties, including higher interest rates, could impact SBA Communications' capital allocation strategy, potentially affecting future earnings and asset investments.
  
• Fluctuations in foreign exchange rates and elevated CPI rates in international markets may unpredictably impact revenue growth and net margins.
  
• Ongoing divestitures, such as exiting operations in the Philippines and Colombia, might temporarily hinder international revenue streams during the transition period.

Valuation

• The analysts have a consensus price target of $253.235 for SBA Communications based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $280.0, and the most bearish reporting a price target of just $225.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $1.0 billion, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $238.5, the analyst price target of $253.24 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.