The average target price of UNIT is 6.1 and suggests 35% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 9.0. This translates into 100% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 3.5. This is equivalent to 22% downside potential in the worst case. 

Uniti, an internally managed real estate investment trust, is engaged in the acquisition and construction of mission critical communications infrastructure, and is a leading provider of wireless infrastructure solutions for the communications industry. As of September 30, 2020, Uniti owns 6.7 million fiber strand miles and other communications real estate throughout the United States.

Uniti Group Inc.

Real Estate

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been good and slightly above its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes most of its profit as dividends (payout ratio above 75%, a negative factor). It will not be easy to sustain such a high payout ratio. It may also indicate a company’s lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends quarterly. 

UNIT reported revenue of USD 1 174mn in the last 12 months, down 5% from FY24. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 2 000% from FY24 to USD -0.13. Market expects EPS to reach USD 0.39 in FY25.

Over the past six months, the stock has consistently fallen, resulting in a 20% total decrease. When measured against its worldwide peers from the same industry (as shown above), the stock has been weaker, underperforming by 17ppts. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 74.5% in the last 12 months, up from 62.7% in FY23. 

Historically, UNIT has reported weak net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 5.4%, a growth from -3.9% in FY23. 

In the last 12 months, the return on capital employed (RoCE) grew to 1.8%, below the peers. The consensus estimate for FY24 for RoCE is -14.4%, again behind the peers. 

Another important profitability metric, return on assets (RoA), amounted to 1.2% in the last 12 months, an increase from -0.9% in FY23. The market analysts predict that RoA will be 2.1% in FY24, again weaker than its peers. 

Uniti Group Inc. reported a return on equity (RoE) of -2.6% in the last 12 months, down from 1.9% in FY23. The market consensus projects an RoE of -4.3% in FY24, again behind its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.3 in the past several years. This ratio implies a weak shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

UNIT boasts very high trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, negligible return on capital, excessive margin volatility, poor working capital management, weak debt servicing capacity, inadequate interest coverage, and an unfavourable capital structure. We note robust profitability, among the positive credit factors. 

In highly turbulent market conditions, UNIT is volatile. In other words, the stock will fall much more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be large. 

In normal market circumstances, UNIT is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from large to notable. We would also like to highlight the notable intraday volatility of the instrument. 

Based on key historical and expected multiples, the stock is greatly undervalued relative to its peers. Specifically, the stock is fairly valued on P/E, undervalued on EV/EBITD. 

Uniti Group Inc.

$ 4.49

4

Uniti Group Inc.

$ 4.49

4

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

$ 4.49

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