SBA Communications (NASDAQ:SBAC) is a compelling cell tower REIT (real estate investment trust) stock from the S&P 500 (SPX) index. SBAC has won analysts’ backing, with a Strong Buy consensus rating and attractive upside potential in the next twelve months. In general, the tower REIT segment is expected to benefit from the increased adoption of 5G, artificial intelligence (AI), and the requirement for additional computing workload.
SBA Communications owns and operates wireless communications infrastructure, including towers, indoor/outdoor distributed antenna systems, and small cells across the U.S., Africa, and Asia.
SBAC’s Financials are Expected to Improve
As per the U.S. REIT mandate, companies are supposed to pay at least 90% of their taxable earnings as dividends to shareholders. Accordingly, SBAC pays a regular quarterly dividend of $0.98 per share, reflecting a yield of 1.57%, below the sector average of 3.9%.
SBAC is scheduled to report its Q1 FY24 results on April 29, after the market closes. The Street expects SBAC to post diluted earnings per share (EPS) of $1.16 on revenues of $671.08 million. In the prior-year quarter, SBAC posted diluted EPS of $0.92 on revenues of $675.52 million.
Analysts’ Bullish Views on SBAC’s Results
Last week, TD Cowen analyst Michael Elias held an investor meeting with SBAC’s top brass. The analyst noted that the domestic carrier activity is expected to remain subdued compared to FY23, implying uncertainty in the domestic new leasing activity. Also, Elias stated that SBAC is likely to exit a couple of markets that contribute less than 1% of revenue by the end of FY24. The analyst has a Buy rating and $266 (36.4% upside) price target on SBAC stock, despite the near term challenges.
Similarly, BMO Capital analyst Ari Klein reiterated a Buy rating on SBAC with a price target of $265 (35.9% upside) in his Q1 FY24 tower REITs preview report. Klein noted that the tower category has underperformed the overall REIT sector and the S&P 500 index (SPX). The analyst also cited carrier spending concerns that need to be factored into the current valuation.
Even so, Klein believes that the new CEO at SBAC could help revive the company with long-term strategic planning. Overall, the analyst is highly optimistic about the tower REIT sector, calling it underappreciated and attractive at current levels.
Is SBAC a Good Stock?
On TipRanks, SBAC stock has a Strong Buy consensus rating, backed by eight Buys versus one Hold rating. The average SBA Communications price target of $259 implies 32.8% upside potential from current levels. In the past year, SBAC shares have lost 25.9%.
Key Takeaways
Since 2023, the real estate market has been facing challenging times owing to high interest rates. SBAC has also had its share of earnings hits and misses in the past several quarters. Despite the odds, analysts are bullish about SBAC stock owing to its ongoing long-term partnership (MLA) with carrier AT&T (NYSE:T) and the long-term potential revival of the tower REIT segment.
