Fiber Expansion Will Capture 5G And AI Demand

Key Takeaways

• Accelerated shift toward fiber infrastructure, supported by favorable regulation and strategic partnerships, is driving higher-margin, recurring revenue and long-term growth opportunities.
  
• Improved capital structure and financial flexibility position Uniti to reinvest in expansion while offsetting legacy revenue declines and enhancing profitability.
  
• Ongoing transition to fiber, high debt, margin pressure, reliance on major clients, and regulatory uncertainty threaten financial stability and future earnings.

Catalysts

Uniti, an internally managed real estate investment trust, is engaged in the acquisition and construction of mission critical communications infrastructure, and is a leading provider of fiber and other wireless solutions for the communications industry.

• Aggressive expansion of fiber-to-the-home coverage, with plans to reach 3.5 million homes passed and 75% fiber-based revenue by 2029, positions Uniti to capture accelerating demand from growing data consumption, 5G, and AI adoption, supporting long-term recurring revenue growth and operating margin improvement.
  
• Robust and expanding deal pipeline with hyperscalers ($1.5 billion in total contract value, 40% of sales funnel), alongside rising lease-up opportunities and cross-selling with Windstream, is expected to drive higher-margin, low-capex, long-term contracts, boosting EBITDA and net earnings as industry demand for bandwidth and low-latency networks escalates.
  
• Regulatory shifts, including favorable FCC/PUC stances on copper retirement and increased support for broadband in rural markets, lower competitive barriers and accelerate the fiber conversion process, enabling Uniti to economically grow its addressable market and further stabilize/expand top-line revenue.
  
• Declining legacy/TDM revenues are being offset by strong growth in fiber infrastructure (7% YoY) and consumer fiber ARPU (+11% YoY) and penetration (+120 bps YoY), indicating that the mix shift to fiber will drive future consolidated revenue and net margin expansion as higher-value offerings comprise a growing share of total business.
  
• Improved capital structure through debt silo unification and proactive refinancing (blended debt yield down 550 bps in 2.5 years) is reducing interest expense and improving financial flexibility, setting the stage for greater net earnings and capacity to reinvest in growth initiatives.

Uniti Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Unity Group's revenue will grow by 46.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 2.9% today to 0.8% in 3 years time.
• Analysts expect earnings to reach $29.9 million (and earnings per share of $0.17) by about September 2028, down from $34.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $62.9 million in earnings, and the most bearish expecting $-192 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 90.2x on those 2028 earnings, up from 42.3x today. This future PE is greater than the current PE for the US Telecom industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.2%, as per the Simply Wall St company report.

Uniti Group Future Earnings Per Share Growth

Risks

• The company faces material ongoing revenue and EBITDA headwinds from declining legacy services (particularly TDM and older product lines), which are not expected to stabilize until 2028, potentially leading to pressure on consolidated revenue and margins in the interim as the business transitions to fiber.
  
• Uniti's capital intensity remains high as it accelerates the fiber build-out, with cost per passing expected to rise to $750–$850; escalating construction costs (especially as builds move to less dense and more rural markets, or require third-party contractors) may pressure net margins and free cash flow for several years.
  
• Sustained high leverage (targeting 5.5x–6.0x net leverage by year-end) combined with substantial debt maturities-even after recent improvements-exposes the company to ongoing refinancing risk, especially if interest rates remain elevated or capital markets tighten, thereby threatening net earnings and financial flexibility.
  
• Dependency on large anchor customers-including hyperscalers and, crucially, the former reliance on Windstream, now merged-means a shift in demand, heightened competition, or repricing by these major clients could materially impact lease rates and recurring revenue.
  
• While rural broadband subsidies (RDOF, BEAD, etc.) facilitate fiber expansion, long-term regulatory or political changes-such as subsidy reductions, changing build requirements, or shifting FCC/state PUC attitudes-could disrupt business models, raise compliance costs, and adversely affect revenue and margins.

Valuation

• The analysts have a consensus price target of $8.25 for Unity Group 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 $11.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $29.9 million, and it would be trading on a PE ratio of 90.2x, assuming you use a discount rate of 10.2%.
• Given the current share price of $6.03, the analyst price target of $8.25 is 26.9% higher.
• 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.