Here's Why You Should Hold On To Crown Castle Amid Risks

On Mar 5, we issued an updated research report on Crown Castle International (NYSE:CCI) .

Crown Castle is a leading wireless communication tower operator in the United States. It owns, operates and leases more than 40,000 cell towers and approximately 60,000 route miles of fiber supporting small cells and fiber solutions in every major U.S. market.

Let’s have a look at what’s affecting the tower operator’s performance.

Upsides

Crown Castle has been continuously trying to reposition itself from a tower company to a fiber provider (focused on the small cell opportunity), through the purchase of several fiber operators. Over the last two years, Crown Castle purchased three fiber operators: FPL FiberNet Holdings, LLC (in January 2017), Quanta Fiber (called Sunesys, in April 2015) and 24/7 Mid-Atlantic Network (in September 2014). On Jun 26, 2017, the company gained ownership of more than 28,000 route miles of fiber with the purchase of privately-held Wilcon Holdings LLC. With the buyout of LTS Group Holdings LLC (Lightower) on Nov 1, 2017, Crown Castle attained ownership of more than 60,000 route miles of fiber. Crown Castle aims to leverage the fiber assets to serve two main business lines — small cell network deployments in top metro markets and other enterprise and adjacent wholesale opportunities.

Meanwhile, wireless services are rapidly gaining ground based on technological advancements and network upgrades. Much of the infrastructure and upgrades require effective site management of cell towers and equipment. Crown Castle successfully addresses this opportunity as more than 90% of its quarterly revenues come from wireless service providers like Verizon, AT&T (NYSE:T) and T-Mobile US. The company has acquired 9,700 wireless towers from AT&T and taken over 7,200 wireless towers of T-Mobile US.

The deployment of 5G network should also drive growth in the company’s tower and small cell assets as wireless carriers are trying to expand and improve networks. The industry has become a battleground for the 5G race. Notably, completion of the 3rd Generation Partnership Project’s (3GPP) first implementable 5G New radio (NR) specification has set the stage for the global mobile industry to initiate full-scale development of 5G NR for large-scale trials and commercial deployments in 2019.

Dividend Payouts

During fourth-quarter 2017, Crown Castle paid common stock dividends of approximately $427 million in aggregate or $1.05 per common share, up around 11% on a per share basis from the year-ago quarter.

We are also impressed with Crown Castle’s board of directors’ decision to reward stockholders with a quarterly cash dividend of $1.05 per share, payable on Mar 30, 2018, to stockholders of record at the close of business on Mar 16, 2018. Notably, the company portrays an impressive record of dividend payouts.

As investors prefer an income-generating stock, a high dividend-yielding one is obviously much coveted. Needless to say, investors are always on the lookout for companies with a track record of consistent and incremental dividend payments.

Hiked 2018 Outlook

Apart from the positives, Crown Castle’s bright outlook for 2018 is encouraging. The company expects Site Rental revenues in the range of $4,582-$4,627 million. Site Rental cost of operation is projected in the $1,360-$1,405 million band. Adjusted EBITDA is anticipated between $3,049 million and $3,094 million. Interest expense (inclusive of amortization) is estimated in the $642-$687 million range. FFO is expected in the range of $1,965-$2,010 million. AFFO is estimated between $2,219 million and $2,264 million. Net income is anticipated between $511 million and $591 million.

Positive Earnings Surprise

Crown Castle has a positive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in two of the previous four quarters, the average beat being 5.67%.

Estimates Trend Up

We note that sales and earnings per share (EPS) estimates for Crown Castle have moved up for the first two quarters of 2018 as well as full-year 2018.

Sales for first and second quarter of 2018 are estimated at $1.31 billion and $1.33 billion, respectively, indicating year-over-year growth of 29% and 27.7%. For 2018, sales are projected at $5.34 billion, reflecting a year-over-year rise of 22.6%.

The Zacks Consensus Estimate for first and second-quarter 2018 EPS is pegged at $1.34 and $1.39, respectively, indicating year-over-year growth of 8.1% and 15.8%. For 2018, EPS is estimated at $5.54, reflecting a year-over-year rise of 14.2%.

The upward estimate revisions reflect optimism on prospects of this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Crown Castle has underperformed its industry in the past three months. Shares of Crown Castle have lost 3.0% compared with the industry’s decline of 10.1%.

Downturns

Crown Castle continues to compete against behemoths like American Tower (NYSE:AMT) and SBA Communications (NASDAQ:SBAC) in the global wireless tower market. Moreover, consolidation in the wireless industry has reduced demand for cell tower and is therefore expected to dent Crown Castle’s top line. Further, new technologies are reducing demand for site leases and are driving costs. High customer concentration is also a concern for the company.

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