We came across a bullish thesis on SBA Communications Corp (SBAC) on ValueInvestorsClub by cubbie. In this article we will summarize the bulls’ thesis on SBAC. SBA Communications shares were trading at $189.59 when this thesis was published, vs. closing price of $239.91 on Sep 18.
A telecommunications tower in a rural setting, showing the reach of cloud telecom services.
SBA Communications Corporation (SBAC) stands out as a leading player in the global wireless communications infrastructure market. Founded in 1989 and headquartered in Boca Raton, Florida, SBAC has developed a robust business model that capitalizes on the exponential growth in mobile data consumption. Since its IPO in 1999, the company has generated an impressive 15% internal rate of return (IRR) for shareholders, outperforming its peers like Crown Castle (CCI) and American Tower (AMT).
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At the heart of SBAC’s success is a generational market opportunity. When the company started, there were merely 11 million global mobile subscribers; today, that number has skyrocketed to approximately 8.9 billion. This surge in connectivity has driven an unparalleled demand for wireless infrastructure. With data consumption expected to grow at 25% annually through 2029, SBAC is ideally positioned to benefit from this ongoing trend.
The company’s business model is built around leasing wireless tower space to carriers. Originally, carriers owned their towers, but in the late 1990s, they began selling these assets to aggregators like SBAC, allowing them to focus on enhancing their networks. The economics of this model are compelling: constructing a new tower costs around $250,000, typically with at least one committed tenant. While the first tenant covers initial fixed costs, adding subsequent tenants significantly increases profitability, pushing unlevered yields into the mid-to-high teens.
One of the key advantages for SBAC is its minimal churn rate, which is primarily driven by carrier mergers that may render some equipment redundant. Once a tower is established, it remains operational, generating reliable revenue streams. Moreover, as SBAC scales, the marginal costs of adding new towers diminish, leading to exceptional contribution margins.
The leadership team at SBAC is another major asset. Former CEO Jeff Stoops, who served from 2002 to 2023, guided the company through significant growth, emphasizing the importance of return on invested capital (ROIC). His successor, Brendan Cavanagh, continues this focus, ensuring that the company remains disciplined in its financial strategies.
Investing in SBAC now presents an attractive opportunity, particularly as interest rates begin to decline. The company is currently trading at a historically low valuation of 17 times EV/EBITDA, compared to its long-term average of 22 times. If interest rates drop, SBAC could refinance its upcoming debt maturities at more favorable terms, allowing it to reinvest in its tower portfolio and capitalize on increased carrier capital expenditures. This potential rerating could yield mid-20% IRR for investors, offering a solid investment with limited downside risk.
In summary, SBA Communications is uniquely positioned in a booming market with a proven business model and experienced management. With a favorable interest rate environment on the horizon, SBAC represents a compelling buy for investors seeking growth and stability.
SBAC is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held SBAC at the end of the second quarter which was 45 in the previous quarter. While we acknowledge the potential of SBAC as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as SBAC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.