Shares of SBA Communications (Nasdaq: SBAC ) hit a 52-week high last Friday. Let's look at how the company got here and see whether clear skies are in the forecast.
How it got here
The story for SBA Communications and its two antenna tower peers, Crown Castle International (NYSE: CCI ) and American Tower (NYSE: AMT ) , is the same: Wireless subscriber growth means the demand for bandwidth carried by those antennas is going to go up. This is great news for cell tower companies, which derive very high margins from renting space on their towers to wireless service providers. It's also relatively easy to add antennas to existing towers, which means once the initial tower-building costs are out of the way, margins are likely to spring higher.
SBA, specifically, has investors excited because of its recent purchase of Mobilitie for $1.1 billion, which added an additional 2,300 antenna towers to its already vast portfolio of approximately 10,500 towers. The deal closed early but required SBA to sell 5.25 million shares of common stock to fund the purchase.
How it stacks up
Let's see how SBA Communications stacks up next to its peers.
I think there just might be a correlation among the stocks in this sector.
Price/ Cash Flow
|Crown Castle International||7.3||23.7||46.5||256%|
Sources: Morningstar, Yahoo! Finance, N/M = not meaningful.
Value investors, hide the women and kids, because these figures definitely aren't for the faint of heart. Antenna towers are very capital intensive, and as these three companies have attempted to expand and beat each other to the punch per se, they've taken on massive piles of debt -- none more so than SBA, which is sitting at a debt-to-equity of 446,669% ... no joke!
What you'll also notice is that even though all three are cash flow-positive, Wall Street expects American Tower and Crown Castle are to be profitable, whereas SBA continues to lose money in each and every year. Over the past decade, SBA has failed to produce a single annual profit. The final nail in the coffin is that SBA's gross margin, while at 70.6% as of its most recently ended fiscal year, is still lower than Crown Castle and American Tower by 20 and 370 basis points, respectively.
Now for the real question: What's next for SBA Communications? That question really depends on whether the capital expenditures increases that Verizon (NYSE: VZ ) and AT&T (NYSE: T ) planned for 2012 actually do materialize and whether that spending winds up trickling down to SBA. Another often ignored factor is whether SBA is capable of turning an annual profit.
Our very own Motley Fool CAPS community gives the company a dreaded one-star rating (out of five), with 62 of 157 members expecting it to underperform. I have made a CAPScall of underperform on SBA and am, in fact, the lone underperform rating among Wall Street players, with a current score of minus-22. Although depreciation of the cell towers has an effect on SBA's net earnings and the company is cash flow-positive, I'm irked by its inability to turn a profit with a gross margin of nearly 71%. At some point, investors are going to grow tired of waiting for tangible results -- I know I have! SBA's debt level also seems precariously high compared with its peers. The story is one I can get behind, but SBA's stock is a completely different story altogether.
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