Here's Why Wireless M&A Shouldn't Weigh On SBA

KeyBanc Capital Markets in a note allayed fears concerning the implication of carrier consolidation for SBA Communications Corporation SBAC.

As such, the firm upgraded shares of SBA Communications from Sector Weight to Overweight and established a price target of $170.

Analyst Brandon Nispel sees potential for acceleration in organic growth in 2018 and 2019, even with potential churn from carrier consolidation. This, according to the analyst, is underappreciated by the market.

Nispel is of the view organic growth will accelerate, with carrier LTE-Advanced investments paving the way for 5G. The analyst estimates that SBA Communication's net organic growth rate will accelerate from its guidance of 4.7 percent to over 6 percent in 2018, with the potential for further acceleration in 2019.

KeyBanc Capital Markets believes spectrum deployments from AT&T Inc. T, including FirstNet, as well as carriers' ongoing 4G LTE-Advanced investments would provide ample opportunity to increase gross new leasing activity.

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"Additionally, we expect churn to decrease as a result of the shutdown of T-Mobile US Inc TMUS's MetroPCS, Sprint Corp S's Clearwire, and Leap networks, which should be fully out of the model by mid-2019," the firm added.

The firm also thinks fears concerning carrier consolidation are overblown, as it believes a T-Mobile/Sprint deal would need more sites, not fewer. Additionally, the firm expects churn to occur over a very long period of time, resulting initially in few leases not being renewed. Therefore, the firm sees no impact from churn until late 2019-2020 if a deal is announced.

Meanwhile, the firm believes SBA Communications will now shift more capital to portfolio growth rather than repurchases. This change in approach, according to the firm, will provide the opportunity to grow site leasing organically for a longer period of time.

"We believe the market has already overreacted to the potential impact of carrier consolidation, and if a merger is announced, would expect an additional negative reaction, which we would use to initiate or add to positions in SBAC," the firm concluded.