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Analyst Blog

On Feb 11, 2014, we upgraded our recommendation on Crown Castle International (CCI - Analyst Report) to Outperform from Neutral.

Why the Upgrade?

An extensive tower portfolio, successful integration of T-Mobile business, expansion of Small Cell business, increased usage of smartphones, and aggressive deployment of 4GLTE networks are likely to spur growth moving ahead.  Moreover, the proposed launch of Verizon’s VoLTE service and continuous acquisitions of towers globally may further drive growth for the company.  

Detailed Analysis

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 comprises 7,000 Distributed Antenna Systems) and the purchase of 7,200 wireless towers from T-Mobile USA (TMUS - Snapshot Report) have positioned Crown Castle as the largest wireless tower operator in the U.S.

Furthermore, the company has entered into a definitive agreement with telecom giant AT&T Inc. (T - Analyst Report) to acquire exclusive rights of 9,700 wireless towers of the latter for a total consideration of $4.85 billion.

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 has converted its tower business into a Real Estate Investment Trust (REIT). An REIT status will benefit the company in terms of tax savings and enhance long-term shareholders wealth. Moreover, it will 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.

Crown Castle currently carries a Zacks Rank #1 (Strong Buy).

Stocks That Warrant a Look

Other stocks in this sector like Arris Enterprises, Inc. (ARRS - Analyst Report), ADTRAN Inc. (ADTN - Analyst Report) and SBA Communications Corp. (SBAC - Snapshot Report) are set to gain from the robust growth of LTE deployment in the upcoming days. Arris carries a Zacks Rank #1 (Strong Buy) while the other two carries a Zacks Rank #2 (Buy).

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