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Here's Why You Should Hold On to Crown Castle (CCI) Stock Now

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Growth in mobile data usage and high network investments in 5G densification will likely spur demand and leasing activity for Crown Castle International Corp.’s (CCI - Free Report) tower business. Given the company’s ability to offer a holistic network solution with towers, fiber and small cells and ample liquidity, it is well-poised to bank on these trends.

In fact, during the first quarter earnings release, the company raised its outlook for the current year, backed by additional straight-lined revenues to be generated from the long-term tower leasing agreement with Verizon Communications Inc. (VZ - Free Report) . This January, it secured a small cell commitment for leasing 15,000 nodes to Verizon over the next four years to support the latter’s 5G build-out.

Moreover, investment in fiber and small cell business on the back of acquisitions, constructions and new deployments complements the company’s tower business and offers solid upside potential to its 5G growth strategy. The company ended 2020 with around 50,000 small cells on air and projects to add another 10,000 this year. The acquisition of a number of fiber operators over the past few years have helped the company gain significant scale and expand portfolio.

In addition to these, a strong and creditworthy tenant base adds resiliency to its business. In fact, the company has long-term (typically 5-15 year) tower lease agreements with top U.S. carriers, which contribute to recurring site rental cash flows over the long term.

Shares of this Zacks Rank #3 (Hold) company have appreciated 29.2% in the past six months compared with the industry’s rally of 21.6%. In addition to that the estimate revision trend of 2021 FFO per share indicates a favorable outlook for the company as estimates have been revised marginally upward over the past two months.

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However, tenant concentration is very high for Crown Castle. In fact, the top three among its customers, Verizon, AT&T and T-Mobile, accounted for majority of its total revenues, of which AT&T contributes a handful amount of site rental revenues. Hence, loss of any of these customers or consolidation among them will significantly affect the company’s top line. Further, its performance is dependent on carrier spending, and hence, any pullback or rationalization in network spending by tenants might affect Crown Castle’s performance.

Further, Crown Castle has a highly-leveraged balance sheet and significant amount of debt relative to its cash flows. Moreover, the company’s debt-to-equity ratio is significantly higher than the industry’s ratio. This limits its strength to withstand any credit crisis and unexpected negative externalities in the future.

Stocks to Consider

Mack-Cali Realty Corporation’s Zacks Consensus Estimate for 2021 FFO per share has moved 1.8% north to 57 cents over the past month. The company currently carries a Zacks Rank of 2 (Buy). You can see thecomplete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Geo Group Inc The (GEO - Free Report) carries a Zacks Rank of 2, at present. The Zacks Consensus Estimate for the ongoing year’s FFO per share has been revised marginally upward to 29 cents over the past month.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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