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Should You Retain Crown Castle (CCI) Stock in Your Portfolio?
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Crown Castle’s (CCI - Free Report) portfolio of wireless communication infrastructure assets in the United States is poised to benefit from the high capital spending by wireless carriers to deploy 4G and 5G networks amid incremental customer demand, a rise in mobile data usage and greater spectrum availability. However, customer concentration and consolidation in the wireless industry raise concerns for Crown Castle. High interest rates add to its woes.
What’s Aiding It?
The exponential growth in mobile data usage, higher availability of spectrum and deployment of 5G networks at scale are driving significant network investments by carriers who aim to improve and densify their cell sites. Moreover, wireless data consumption is expected to increase considerably over the next several years, driven by the advent of next-generation technologies, including edge computing functionality, autonomous vehicle networks and the Internet-of-Things and the rampant usage of network-intensive applications for video conferencing and cloud services and hybrid-working scenarios.
Given Crown Castle’s unmatched portfolio of more than 40,000 cell towers and approximately 85,000 route miles of fiber (as of the third quarter of 2023) in the top 100 basic trading areas of the United States, it remains well-positioned to capitalize on this upbeat trend.
The company’s investments in fiber and small cell business on the back of acquisitions, constructions and new deployments complement its tower business and offer meaningful upside potential to its 5G growth strategy. It is working on increasing the rate of small cell node deployments this year to 10,000 compared with the 5,000 nodes it put on air in 2022 to meet the growing customer demand. For 2024, it expects to deploy a record 14,000 small-cell nodes. Also, long-term leases with a solid and creditworthy tenant base assure steady revenues.
Crown Castle has sufficient liquidity and a decent balance sheet position. The company exited the third quarter of 2023 with cash and cash equivalents of $117 million. As of Sep 30, 2023, the net debt to last quarter’s annualized adjusted EBITDA was 5.4X. It has limited maturities through 2024, with a weighted average term-to-maturity of eight years.
Solid dividend payouts are arguably the biggest enticement for REIT shareholders and Crown Castle is committed to that. It has increased its dividend five times in the last five years and its five-year annualized dividend growth rate is 8.66%.
Given that the company’s dividends are supported by high-quality, long-term contracted lease payments and that it benefits from being a provider of mission-critical shared communication infrastructure assets, we expect the dividend payout to be sustainable over the long run. Management targets a long-term annual dividend per share growth of 7-8% beyond 2025.
Shares of Crown Castle, currently carrying a Zacks Rank #3 (Hold), have soared 20% in the past month, outperforming the industry’s growth of 11.2%.
Image Source: Zacks Investment Research
What’s Hurting It?
Customer concentration is very high for Crown Castle. As of Sep 30, 2023, around three-fourths of the company’s site rental revenues were derived from T-Mobile (35%), Verizon (19%) and AT&T (20%). The loss of any of these customers or consolidation among them will significantly affect the company’s top line. Particularly, the company’s 2023 and 2024 financial results are likely to be affected as T-Mobile is expected to cancel a part of its tower, small cell and fiber leases over the next few years in relation to the consolidation of a legacy Sprint network.
CCI has a substantially leveraged balance sheet and a significant amount of debt relative to its cash flows. The company’s debt and other long-term obligations aggregated $21.9 billion as of Sep 30, 2023. Moreover, in an elevated interest rate environment, additional borrowings to fund near-term capital expenditures will not only inflate the company’s debt but also raise the cost of borrowings.
Management expects to incur interest expenses and amortization of deferred financing costs between $834 million and $869 million in 2023. Our estimate indicates a year-over-year rise of 20.4% in the company’s current-year interest expenses. With high interest rates in place, the dividend payout might become less attractive than the yields on fixed-income and money market accounts.
The Zacks Consensus Estimate for Welltower’s current-year funds from operations (“FFO”) per share has moved marginally northward over the past month to $3.58.
The Zacks Consensus Estimate for STAG Industrial’s 2023 FFO per share has moved 1.3% upward in the past month to $2.28.
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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Should You Retain Crown Castle (CCI) Stock in Your Portfolio?
Crown Castle’s (CCI - Free Report) portfolio of wireless communication infrastructure assets in the United States is poised to benefit from the high capital spending by wireless carriers to deploy 4G and 5G networks amid incremental customer demand, a rise in mobile data usage and greater spectrum availability. However, customer concentration and consolidation in the wireless industry raise concerns for Crown Castle. High interest rates add to its woes.
What’s Aiding It?
The exponential growth in mobile data usage, higher availability of spectrum and deployment of 5G networks at scale are driving significant network investments by carriers who aim to improve and densify their cell sites. Moreover, wireless data consumption is expected to increase considerably over the next several years, driven by the advent of next-generation technologies, including edge computing functionality, autonomous vehicle networks and the Internet-of-Things and the rampant usage of network-intensive applications for video conferencing and cloud services and hybrid-working scenarios.
Given Crown Castle’s unmatched portfolio of more than 40,000 cell towers and approximately 85,000 route miles of fiber (as of the third quarter of 2023) in the top 100 basic trading areas of the United States, it remains well-positioned to capitalize on this upbeat trend.
The company’s investments in fiber and small cell business on the back of acquisitions, constructions and new deployments complement its tower business and offer meaningful upside potential to its 5G growth strategy. It is working on increasing the rate of small cell node deployments this year to 10,000 compared with the 5,000 nodes it put on air in 2022 to meet the growing customer demand. For 2024, it expects to deploy a record 14,000 small-cell nodes. Also, long-term leases with a solid and creditworthy tenant base assure steady revenues.
Crown Castle has sufficient liquidity and a decent balance sheet position. The company exited the third quarter of 2023 with cash and cash equivalents of $117 million. As of Sep 30, 2023, the net debt to last quarter’s annualized adjusted EBITDA was 5.4X. It has limited maturities through 2024, with a weighted average term-to-maturity of eight years.
Solid dividend payouts are arguably the biggest enticement for REIT shareholders and Crown Castle is committed to that. It has increased its dividend five times in the last five years and its five-year annualized dividend growth rate is 8.66%.
Given that the company’s dividends are supported by high-quality, long-term contracted lease payments and that it benefits from being a provider of mission-critical shared communication infrastructure assets, we expect the dividend payout to be sustainable over the long run. Management targets a long-term annual dividend per share growth of 7-8% beyond 2025.
Shares of Crown Castle, currently carrying a Zacks Rank #3 (Hold), have soared 20% in the past month, outperforming the industry’s growth of 11.2%.
Image Source: Zacks Investment Research
What’s Hurting It?
Customer concentration is very high for Crown Castle. As of Sep 30, 2023, around three-fourths of the company’s site rental revenues were derived from T-Mobile (35%), Verizon (19%) and AT&T (20%). The loss of any of these customers or consolidation among them will significantly affect the company’s top line. Particularly, the company’s 2023 and 2024 financial results are likely to be affected as T-Mobile is expected to cancel a part of its tower, small cell and fiber leases over the next few years in relation to the consolidation of a legacy Sprint network.
CCI has a substantially leveraged balance sheet and a significant amount of debt relative to its cash flows. The company’s debt and other long-term obligations aggregated $21.9 billion as of Sep 30, 2023. Moreover, in an elevated interest rate environment, additional borrowings to fund near-term capital expenditures will not only inflate the company’s debt but also raise the cost of borrowings.
Management expects to incur interest expenses and amortization of deferred financing costs between $834 million and $869 million in 2023. Our estimate indicates a year-over-year rise of 20.4% in the company’s current-year interest expenses. With high interest rates in place, the dividend payout might become less attractive than the yields on fixed-income and money market accounts.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) and STAG Industrial, Inc. (STAG - 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 Welltower’s current-year funds from operations (“FFO”) per share has moved marginally northward over the past month to $3.58.
The Zacks Consensus Estimate for STAG Industrial’s 2023 FFO per share has moved 1.3% upward in the past month to $2.28.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.