SBA receives strong outlook despite modest Q3 growth: Analysis

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Despite modest growth and meager activity in new wireless spectrum, analysts have maintained an optimistic outlook for SBA Communications. But a key question is how much spectrum carriers deploy next year.

In its third quarter earnings report, SBA showed growth rates below historical levels. Which isn’t tremendously surprising given that telcos don’t appear to be in much of a rush to make use of additional spectrum they already own.

“Management has seen little activity to date as it relates to AWS, WCS and 2.5GHz spectrum builds. Moreover, the company indicated that it expects a similar ratio of amendments / collocation (70 percent / 30 percent, respectively) in 4Q and into 2017,” Barclays wrote in a recent report.

For years now, telcos have been gradually deploying services on recently unlocked bands of spectrum. Some, like T-Mobile, which recently lit up its AWS-3 spectrum, are moving faster than others.

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Given the outlook, 2016 probably won’t be the turning point. But analysts’ optimistic view about its future growth appears contingent on companies deploying this spectrum in 2017.

“Given mixed data points as to the set-up for 2017, we believe an increasing amount of focus will be directed toward the company’s 2017 guidance and the expected timing of new spectrum deployment,” Barclays analysts said in their report.

Barclays didn’t change its overweight ranking for SBA’s stock, and Cowen and Company gave the company an outperform ranking, so they are clearly betting that the new spectrum will be deployed in time.

For their part, carriers have cited some technological barriers to deploying the new spectrum bands, while nevertheless promising big improvements when they come online.

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The fact that these carriers are still working hard to bring their existing spectrum online may explain their thus-far tepid response to the FCC’s spectrum auction.

Stage 2 of the incentive auction recently ended after just a single round of bidding. It generated just $21.5 billion, failing to meet the $52.6 billion clearing cost as expected, but by a much greater margin.

But assuming the carriers can get their spectrum bands online in time, as analysts apparently expect they will, given SBA’s outlook, the demand for additional spectrum could bounce back.