SBA Reports a Solid Q4, but Sees Business Decelerating and a Softer 2023

SBA Communications SBAC concluded 2022 with another strong quarter of sales and leasing activity, but slowing U.S. carrier spending led the firm to guide to slower growth in 2023. We saw no surprises and are raising our fair value estimate to $255 from $250, leaving the stock in 3-star territory and finally trading at levels closer to historical EBITDA and adjusted funds from operations multiples.

The U.S. business closed 2022 at its peak, with organic leasing (same tower sales) growing 5% year over year during the fourth quarter even with heightened churn from the expiration of some Sprint contracts. Gross organic growth, which excludes churn, was 8.5%, the best quarter since 2019. However, after heavy spending in 2022 from the Big Four U.S. carriers (including Dish), which collectively make up about 95% of domestic activity, management is seeing a collective slowdown. Both bookings and the backlog were lower in the fourth quarter compared with earlier in the year, a trend that should continue into 2023. As the firm laps new leases throughout 2023, management expects sales growth to slow. The firm will also see higher Sprint churn in 2023. We believe SBA still has good U.S. growth potential, and we expect more runway for midband spectrum deployment on towers. However, we think gross leasing in 2022 was well beyond a normalized level and don’t expect the firm to repeat those results in the next few years.

The international profile looks similar to that of the U.S.—very strong leasing activity but with elevated churn. Organic sales growth was 5.4% year over year despite a nearly 8-percentage-point headwind from churn. As was the case for much of 2022, carrier consolidation in multiple markets and the exit of Digicel from Panama caused the higher level of cancellations. We think the 2022 level of leasing activity in international markets is maintainable, but the 13% gross organic growth got an outsize boost from escalators, which are tied to inflation in many international markets.