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Here's Why You Should Retain Crown Castle (CCI) Stock for Now

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Crown Castle (CCI - Free Report) is well-poised to benefit from the increase in mobile data usage, spectrum availability and high network investments by wireless carriers to deploy 5G networks. Its strong and creditworthy tenant base adds resiliency to its business and helps generate steady revenues. However, customer concentration and consolidation in the wireless industry are key concerns for the company.

Crown Castle's portfolio of towers has a strong presence in the top 100 basic trading areas of the United States. The company's investment in fiber and small cell business, through acquisitions, constructions, and new deployments, complements its tower business and supports its 5G growth strategy. CCI operated more than 40,000 cell towers and approximately 85,000 route miles as of first-quarter 2023 end. Also, management expects to double the rate of small cell deployments this year compared with the 5,000 nodes it put on air in 2022 to meet the growing customer demand.

Crown Castle has long-term (typically 5-15 years) tower lease agreements with top U.S. carriers, which contribute to recurring site rental cash flows over the long term. Also, contracted rent escalators on most of its revenues offer embedded growth. For 2023, management expects total site rental revenues to be between $6,488 and $6,533 million. We project the same to increase 3.5% year over year.

Crown Castle has sufficient liquidity and a decent balance sheet position. As of Mar 31, 2023, the net debt to last quarter’s annualized adjusted EBITDA was 5.0X. It has limited maturities through 2024, with a weighted average term to maturity of nine years. As of the first-quarter end, it had more than $5.5 billion of available liquidity under its revolving credit facility.

Solid dividend payouts are arguably the biggest enticement for REIT shareholders and Crown Castle is committed to that. The company’s dividends are supported by high-quality, long-term contracted lease payments and it benefits from being a provider of mission-critical shared communication infrastructure assets. CCI has increased its dividend five times in the last five years and its five-year annualized dividend growth rate is 9.06%. Check Crown Castle’s dividend history here.

However, the company’s debt and other long-term obligations aggregated $21.5 billion as of the first-quarter 2023 end. Moreover, in an elevated interest rate environment, additional borrowings to fund near-term capital expenditures will not only inflate its debt but also raise the cost of borrowings. Management expects to incur interest expense and amortization of deferred financing costs between $814 million and $859 million in 2023. Our estimation for the same indicates a year-over-year rise of 22.5%.

Also, Crown Castle faces high customer concentration, with T-Mobile, AT&T, and Verizon accounting for around three-fourths of its site rental revenues as of Mar 31, 2023. The loss of any of these customers or their consolidation would have a significant impact on the company's revenues. Particularly, the company’s 2023 financial results are likely to be affected as T-Mobile is expected to cancel part of its tower, small cell and fiber leases over the next few years in relation to the consolidation of a legacy Sprint network. Additionally, any reduction or rationalization in network spending by carriers could impact Crown Castle's performance. Although per our estimates, net revenues are likely to exhibit modest year-over-year growth of 2.8% in 2023, the same is anticipated to decline 2.1% in 2024.

Shares of this Zacks Rank #3 (Hold) company have lost 19.3% over the past six months compared with the industry's decline of 8.3%.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Host Hotels & Resorts (HST - Free Report) , and EastGroup Properties (EGP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Host Hotels & Resorts’ 2023 FFO per share has been revised 7.4% north over the past month to $1.88.

The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has been revised 1.3% north over the past month to $7.54.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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