On Thursday, KeyBanc made adjustments to its ratings on companies within the Communications Services sector, indicating a varied performance outlook for 2025. The firm expects that while some companies will excel and others will show moderate success, most will likely underperform relative to the market. As a result, KeyBanc has downgraded T-Mobile (NASDAQ:TMUS) to Sector Weight and upgraded Charter Communications (NASDAQ:CHTR) to Overweight.
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The firm's analysis suggests that the Wireless and Data Center sub-sectors are currently favored by the market, whereas Cable and Towers are not. KeyBanc, preferring relative value and anticipating a reversion to the mean, sees a better risk/reward in supporting the less favored sub-sectors. In the Towers segment, SBA Communications shows strong fundamentals with a 77.5% gross profit margin and has maintained consistent dividend growth, raising its payouts for 6 consecutive years. The firm predicts that in 2025, increased capital spending on Wireless could benefit the Towers, while Cable may face challenges with slowing Fixed Wireless Access (FWA) subscriber growth and only modest improvements in Broadband subscribers.
Additionally, the firm expects a deceleration in postpaid phone net additions and Average Revenue Per User (ARPU) growth for the Wireless sub-sector. For Data Centers, there is an anticipation of reduced capital spending from Hyperscalers, which could impact growth.
KeyBanc has revised its estimates for T-Mobile, Comcast Corporation (NASDAQ:CMCSA), Charter Communications, and Cable One (NYSE:CABO). The analyst's preferred sub-sectors are Cable and Towers due to their potential for a positive shift in market sentiment, while a more cautious stance is taken on Data Centers and Wireless.
The firm's favored stock picks include Warner Bros. Discovery (NASDAQ:WBD), Cogent Communications Holdings (NASDAQ:CCOI), SBA Communications Corporation (NASDAQ:SBAC), Comcast, Charter Communications, and Cable One. SBAC currently trades at a P/E ratio of 33.8, with analysts projecting continued profitability and net income growth this year.
According to InvestingPro analysis, the company maintains a "GOOD" overall financial health score. Conversely, KeyBanc is more cautious about stocks such as Walt Disney Company (NYSE:NYSE:DIS), Verizon Communications Inc. (NYSE:NYSE:VZ), Equinix, Inc. (NASDAQ:EQIX), and Digital Realty Trust, Inc. (NYSE:NYSE:DLR), suggesting a conservative approach towards these companies within the sector.
In other recent news, SBA Communications Corporation reported robust Q3 financial results and raised its full-year 2024 outlook. This improved forecast is attributed to favorable foreign exchange rates and increased domestic carrier activity. A notable development was the acquisition of over 7,000 sites from Millicom International Cellular in Central America, anticipated to significantly enhance site leasing revenue and cash flow.
Concurrently, SBA (LON:SBA) is divesting from less profitable markets, such as the Philippines, to focus on growth opportunities in Central America and domestically.
SBA Communications exceeded service results and met leasing expectations in Q3, contributing to a raised outlook for key financial metrics for 2024. Furthermore, the company increased its dividend to $0.98 per share for Q4, marking a 15% rise from the previous year. Despite a churn rate of 3.3% in Q3, due in part to Sprint consolidation, the company's international recurring cash leasing revenue grew by 3.1% on a constant currency basis.
These recent developments highlight SBA Communications' strategic moves to drive growth and shareholder value through acquisitions and operational efficiency. The company's strong balance sheet and proactive approach to market opportunities underscore expectations for continued growth in new lease co-locations into 2025.
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