On Aug 22, 2014, we issued an updated research report on Crown Castle International
(CCI - Analyst Report
) . Increased deployment of 4G LTE networks has propelled demand for tower requirement by large carriers, which has encouraged the company to raise its outlook for fiscal 2014.
Crown Castle has delivered positive earnings surprise in one of the last four quarters, with an average surprise of negative 5.49%. The company reported mixed financial results for the second quarter of 2014 with the bottom line missing the Zacks Consensus Estimate but the top line surpassing the same.
Crown Castle has a substantially leveraged balance sheet. At the end of the second quarter of 2014, the company had nearly $11.5 billion of debt and a debt-to-capitalization ratio of 0.62. Owing to the significantly high debt levels, the company may not be able to generate sufficient cash to give shape to its annual capital expenditure plans. Moreover, it will be difficult to raise more debts in the near future.
Customer concentration is significantly high for Crown Castle. Historically, the top four customers, namely, Verizon Wireless, AT&T, Inc. (T - Analyst Report
) , Sprint Corp. (S - Analyst Report
) , and T-Mobile U.S. accounted for nearly 84% of Crown Castle’s total revenue, of which AT&T contributes nearly 26% of its site rental revenues. Thus, loss of any of these customers or consolidation among them will significantly affect the company’s top line.
Consolidation in the wireless industry may reduce demand for cell tower deployments and therefore is expected to have an adverse effect on Crown Castle’s top line. Also, the company’s expansive international presence exposes it to currency exchange rate risks. Meanwhile, the stock is overvalued at current levels and is trading at the high-end of its 52-week price range.
Crown Castle currently carries a Zacks Rank #3 (Hold). Another stock in this sector that warrants a look is CommScope Holding Company, Inc. (COMM - Snapshot Report
) with a Zacks Rank #1 (Strong Buy).