JPMorgan Steps To The Sidelines On SBA Communications

JPMorgan has downgraded tower operator SBA Communications Corporation (NASDAQ: SBAC) to Neutral from Overweight on slower domestic and international growth.

"While we like SBAC and the tower business long term, with lower estimates the stock now trades relatively in-line with peers and we don't see a catalyst for further gains this year," analyst Philip Cusick stated.

Cut And Justification

Cusick, who also cut the price target on the stock to $115 from $120, said that although SBA Communications "had hinted that the high-end of domestic guidance was aggressive," the cut to domestic leasing revenue growth was higher than his expectation. As such, the analyst slashed his fourth quarter domestic cash leasing revenue growth rate to 5.5 percent y/y and expect it to continue in 2017.

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Furthermore, the analyst sees no sign of AT&T Inc. (NYSE: T) or Sprint Corp (NYSE: S) ramping up its activity levels, and even if it happens, it won't have much impact on 2016 (but could benefit 2017).

Cusick also cut his share buyback estimate to $50 million per quarter from $150 million per quarter, as SBA Communications sees a continued low level of activity and elevated churn in the domestic business.

Further, the analyst noted that a high leverage of 7.7x limits the company to be aggressive with its buyback despite any weakness in the stock. Cusick now estimates the company ending 2016 at a leverage ratio of 7.0x 2017 EBITDA.

SBA COmmunications' Guidance

In addition, SBA Communications has changed its annual guidance timing to 4Q results, which means investors may not get a significant update until February 2017.

SBA Communications, which expects its NOLs (net operating losses) to last into 2020, said it could convert to REIT, but that won't happen before 2018. SBAC guided to about $10 in AFFO/share in 2020 versus JPMorgan's estimate of $9.80.

"We will be looking for opportunities to become more constructive but step to the sidelines for now," Cusick added.

Shares of SBA Communications fell 5 percent to $99.90.