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Should You Retain Crown Castle (CCI) in Your Portfolio Now?
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Crown Castle (CCI - Free Report) owns a portfolio of wireless communication infrastructure assets in the United States. It is well-poised to benefit from the increase in mobile data usage, spectrum availability and high capital spending by wireless carriers to deploy 4G and 5G networks amid incremental customer demand. However, customer concentration and consolidation in the wireless industry are key concerns for the company. 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.
This is likely to be 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.
Crown Castle remains well-positioned to capitalize on its unmatched portfolio, which consists of more than 40,000 cell towers and approximately 90,000 route miles of fiber in the top 100 basic trading areas of the United States as of the fourth quarter of 2023.
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. Management is working on increasing the small cell deployments and expects to deliver 16,000 new nodes in 2024.
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 four times in the last five years and its five-year annualized dividend growth rate is 8.54%. Check Crown Castle’s dividend history here.
What’s Hurting It?
Customer concentration is very high for Crown Castle. As of Dec 31, 2023, around three-fourths of the company’s site rental revenues were derived from T-Mobile (36%), Verizon (19%) and AT&T (19%). The loss of any of these customers or consolidation among them will significantly affect the company’s top line. Moreover, any pullback or rationalization in network spending by carriers may affect Crown Castle’s performance.
CCI has a substantially leveraged balance sheet. As of Dec 31, 2023, its debt and other long-term obligations aggregated $22.09 billion. 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 $933 million and $978 million in 2024. Our estimate indicates a year-over-year rise of 9.8% in the company’s current-year interest expenses. With high interest rates still in place, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have declined 2.1% against the industry’s upside of 3.6%.
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Should You Retain Crown Castle (CCI) in Your Portfolio Now?
Crown Castle (CCI - Free Report) owns a portfolio of wireless communication infrastructure assets in the United States. It is well-poised to benefit from the increase in mobile data usage, spectrum availability and high capital spending by wireless carriers to deploy 4G and 5G networks amid incremental customer demand. However, customer concentration and consolidation in the wireless industry are key concerns for the company. 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.
This is likely to be 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.
Crown Castle remains well-positioned to capitalize on its unmatched portfolio, which consists of more than 40,000 cell towers and approximately 90,000 route miles of fiber in the top 100 basic trading areas of the United States as of the fourth quarter of 2023.
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. Management is working on increasing the small cell deployments and expects to deliver 16,000 new nodes in 2024.
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 four times in the last five years and its five-year annualized dividend growth rate is 8.54%. Check Crown Castle’s dividend history here.
What’s Hurting It?
Customer concentration is very high for Crown Castle. As of Dec 31, 2023, around three-fourths of the company’s site rental revenues were derived from T-Mobile (36%), Verizon (19%) and AT&T (19%). The loss of any of these customers or consolidation among them will significantly affect the company’s top line. Moreover, any pullback or rationalization in network spending by carriers may affect Crown Castle’s performance.
CCI has a substantially leveraged balance sheet. As of Dec 31, 2023, its debt and other long-term obligations aggregated $22.09 billion. 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 $933 million and $978 million in 2024. Our estimate indicates a year-over-year rise of 9.8% in the company’s current-year interest expenses. With high interest rates still in place, the dividend payout may seem less attractive than the yields on fixed-income and money market accounts.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have declined 2.1% against the industry’s upside of 3.6%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties (EGP - Free Report) and Host Hotels & Resorts (HST - 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 EGP’s 2024 FFO per share has moved marginally upward in the past month to $8.30.
The Zacks Consensus Estimate for HST’s current year’s FFO per share has been raised 1.6% upward over the past month to $1.92.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.