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Analyst Blog

On Sep 10, we maintained our Neutral recommendation on Crown Castle International Inc. (CCI - Analyst Report), as both its top and bottom lines topped the Zacks Consensus Estimate in the recently concluded quarter.

Why Maintained at Neutral?

Higher usage of smartphones and tablets and increased deployment of 4G LTE networks have propelled demand for tower requirement by large carriers. Moreover, the acquisition of NextG Networks Inc. (which comprise 7,000 Distributed Antenna Systems) and the purchase of 7,200 wireless towers from T-Mobile USA have made it the largest wireless tower operator in the U.S.

As transporting equipment from one tower to another is cumbersome, carriers normally renew contracts upon expiration. This implies that a high percentage of Crown Castle’s revenue is recurring.

Recently, the company decided to convert its tower business into a Real Estate Investment Trust (REIT). An REIT status will benefit the company in terms of tax savings and enhancing long-term shareholders wealth. Moreover, it will also minimize the weighted average cost of capital (WACC). Following the conversion, Crown Castle will distribute 90% of its earnings through dividends every year, reducing tax.

However, a highly leveraged balance sheet and the ongoing merger deals between large telecom carriers may act as headwinds for the company going forward. Moreover, Crown Castle is currently trading at a 52-week high.

Crown Castle carries a Zacks Rank #3 (Hold).

Other Stocks Outlook in Related Industries    

Other stocks in this sector like American Tower Corporation (AMT - Analyst Report), ADTRAN Inc. (ADTN - Analyst Report) and Douglas Emmett Inc. (DEI - Snapshot Report) are set to gain from the robust growth of LTE deployment in the upcoming days.

Currently, Douglas Emmett has a Zacks Rank #2 (Buy) while both American Tower Corporation and ADTRAN have a Zacks Rank #3 (Hold).

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