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On May 9, 2014, we issued an updated research report on Crown Castle International (CCI - Analyst Report).

Crown Castle has delivered positive earnings surprises in two of the last four quarters last year, with an average beat of 11.7%. The company reported mixed financial results for the first quarter of fiscal 2014 with the bottom line missing the Zacks Consensus Estimate but the top line surpassing the same.

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 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 to 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.

In Jan, 2014, the company started operating as a Real Estate Investment Trust (REIT). An REIT status will benefit the company in terms of tax savings and will also enhance long-term shareholders wealth. Furthermore, operating as an REIT will minimize the weighted average cost of capital. Following the conversion, Crown Castle will distribute 90% of its earnings through dividends every year, reducing tax.

On the flip side, a highly leveraged balance sheet and the ongoing merger deals between large telecom carriers may act as headwinds for the company going forward. Moreover, the stock is overvalued at current levels. Meanwhile, for the last one year, the stock price of Crown Castle has been trading at the high-end of its 52-week price range.

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

Stocks That Warrant a Look

Other stocks in this sector include CommScope Holding Company, Inc. (COMM - Snapshot Report), Nokia Corp. (NOK - Analyst Report) and Juniper Networks, Inc. (JNPR - Analyst Report). CommScope has a Zacks Rank #1 (Strong Buy) while Juniper Networks and Nokia carry a Zacks Rank #2 (Buy).

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