SBA Earnings: Management’s Response To Changing Economic Conditions Benefits Investors

SBA SBAC experienced a similar second quarter as its peers, with the company posting solid U.S. results while seeing a reduction in carrier activity that will likely cause a slowdown in the coming quarters. Still, the company raised its full-year financial guidance on the top- and bottom lines, and we have become more comfortable with the stock considering the measured approach management is now taking with debt management and a recently signed long-term master lease agreement with AT&T. We’re maintaining our $260 fair value estimate and believe the stock is undervalued.

Same-tower U.S. sales grew 4.2% year over year, held back a bit by an expected uptick in Sprint churn. Dish Network was a significant contributor to growth, but management said Dish has become much less active in the wake of meeting its recent regulatory buildout requirement and we expect the coming quarters to be leaner. However, SBA, which hasn’t relied on MLAs like its peers have, signed a five-year MLA with AT&T and reiterated that it would consider signing them with other carriers as well. The MLA does not change the leasing growth we expect SBA will achieve over this term, but the guaranteed spending that the MLA brings should give investors confidence there won’t be significant volatility.

International growth was better than we expected, with a significant reduction in churn and inflation-based escalators driving nearly 5% same-tower sales growth. Churn has been heightened due to some carrier consolidation in Central America and an agreement with TIM Brasil regarding Oi contracts it took over after that carrier’s business was split among incumbents, and SBA is now lapping some of the cancelations. Management also said that international leasing activity has been stronger than expected, leading the firm to raise its outlook for the international contribution.