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We upgrade our recommendation on Crown Castle International Corp. (CCI - Analyst Report) to Outperform following its recent acquisition of 7,200 wireless towers of T-Mobile USA. Significant growth of wireless broadband, higher usage of smartphones and tablets together with increased deployment of 4G LTE networks are long-term positives for the wireless tower industry. Crown Castle continues to report robust results over the last couple of years, improving its core site rental revenue, gross margin, adjusted EBITDA, and recurring cash flow.

We believe future financials will be driven by substantial demand for more tower space to facilitate high-speed wireless networks. In this respect, the newly acquired T-Mobile wireless towers will enable Crown Castle to improve both its top and bottom line. After the acquisition of T-Mobile towers, Crown Castle will become the largest wireless tower operator in the U.S., outpacing American Tower Corp. (AMT - Analyst Report), with more than 30,000 towers and an extensive network of small cells. Our long-term view regarding wireless tower industry remains intriguing and we believe Crown Castle is well positioned to successfully capitalize on these opportunities.

Wireless services are advancing rapidly in terms of additional features and capabilities.  Much of the infrastructure and upgrades require effective site management of cell towers and equipment. CrownCastle effectively addresses this opportunity as 95% of its quarterly revenue is currently derived from wireless service providers. The company accumulates most of its revenue from long-term (typically 5-10 year) tower leases. It has become imperative for carriers to improve network quality, and coverage, in order to minimize customer churn. Increased wireless coverage, by using more tower space, is one of the major initiatives that carriers take to improve transmission quality.

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