On Thursday, Jefferies analysts downgraded Crown Castle (NYSE:CCI) shares, moving from a 'Buy' to a 'Hold' rating. The firm also significantly reduced the price target for Crown Castle (NYSE: CCI) to $84.00, a sharp decline from the previous target of $127.00.
The downgrade comes amid concerns over the potential sale of Crown Castle's Fiber & Small Cell business, which may fetch a lower than anticipated price and affect the company's earnings.
Jefferies' analysis suggested that the reported valuations of the Fiber & Small Cell business, ranging between $8 billion and $10 billion, are underwhelming. These figures imply a 6-8x EBITDA multiple, which could lead to a substantial earnings dilution for Crown Castle. The analyst presented a detailed scenario analysis in Exhibit 5 to illustrate the potential impact on the company's financials.
The sale of the business segment is also expected to have repercussions on Crown Castle's dividend payouts. Petersen estimated that a sale could require a dividend cut of 15-25% to maintain a healthy payout ratio, which is a critical consideration for income-focused investors.
Adding to the company's challenges, Jefferies highlighted the limited growth in domestic tower revenues. This slowdown is attributed to a moderation in capital expenditure growth by carriers. Moreover, Crown Castle is anticipated to confront an additional hurdle in 2025 with an estimated $200 million in churn from Sprint, further pressuring the company's earnings.
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