Two years ago, when William Harnisch, CEO of hedge fund Peconic Partners, saw the explosion in the use of cellular telephones, he started buying shares -- not of phone providers but of SBA Communications (SBAC ). The company owns the towers where cell-phone carriers put up their antennas. Harnisch figures the tower companies will grow much faster than the wireless carriers. Since Harnisch bought SBA's shares, they have leaped from 4 to 16. "SBA, the smallest player in the tower industry -- an integral part of the wireless providers' networks -- is a long-term growth play," says Harnisch. Peconic now owns more than 3% of SBA. Harnisch thinks the stock is worth 27, based on the growth of its free cash flow and its rising earnings before interest, taxes, depreciation, and amortization (EBITDA). Although still in the red, results in its third quarter beat Wall Street forecasts, prompting some analysts to raise their estimates. Stronger-than-expected demand boosted tower site-leasing revenues, says Jonathan Atkins of RBC Capital Markets -- which has done banking for SBA. He rates SBA "outperform," based on its order backlog and reduced capital expenditures. For site rentals, SBA gets a monthly fee of at least $1,800 per tower from the phone carriers, which usually sign contracts for five years or more. SBA also gets paid for related services. It owns 3,215 towers in the U.S., Puerto Rico, and the Virgin Islands. There are three "tenants" at each of the towers -- which can accommodate up to six. Atkins figures SBA will post revenues of $160.7 million in 2005 and $181.3 million in 2006, and EBITDA of $93.4 million in 2005 and $111.1 million in 2006.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial