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What's in Store for Crown Castle (CCI) This Earnings Season?

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Crown Castle International Corp. CCI is scheduled to release fourth-quarter and full-year 2019 results on Feb 26, after the closing bell. The company’s quarterly results are expected to reflect year-over-year growth in funds from operations (FFO) per share and revenues.

The Houston-based real estate investment trust (REIT) surpassed the Zacks Consensus Estimate in terms of adjusted funds from operations (AFFO) per share by 4.73% in the last reported quarter. Results reflected benefits from the company’s extensive tower portfolio, high demand for infrastructure and healthy leasing activity.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed in the other. It delivered an average positive surprise of 2.11% during this period. The graph below depicts this surprise history:

Let’s see how things are shaping up prior to this announcement.

Factors at Play

With growing demand for data volume and 5G network deployments, wireless carriers have been expanding and enhancing their networks for the past few quarters. This, in turn, is likely to have positively impacted Crown Castle’s top-line growth in the December-end quarter, which has an unmatched portfolio of towers, small cells and fiber assets.

Moreover, the company enjoys incremental sales growth by adding new tenants to existing tower infrastructures, in turn, boosting profit margins. In fact, the Zacks Consensus Estimate for fourth-quarter 2019 site rental revenues moved up nearly 5% year over year to $1,269 million.

In addition, with mobile devices and connections progressing from lower-generation network connectivity to higher-generation ones, like 4G, LTE and 5G, carrier-network investments have been growing at a rapid pace. This secular growth trend in the cellular tower sector is benefiting tower companies, including Crown Castle.

Amid this, robust small-cell deployments in the past quarters are anticipated to have boosted the company’s fourth-quarter site rental revenues from small-cell deployments by 4.6% to $430 million, year on year. Also, the Zacks Consensus Estimate for the quarterly site rental revenues from towers is pegged at $839 million, indicating a 5.1% year-over-year increase.

However, net revenues from network services and other segment are pinned at $209 million for the December-end quarter, suggesting a marginal year-over-year decline.

Consequently, aided by estimated year-over-year growth of 4.4% in total revenues to $1.48 billion, Crown Castle’s FFO per share is likely to have witnessed a 4.2% increase to $1.48, during the same time frame.

However, amid favorable industry fundamentals, the company is facing stiff competition from other tower companies. This is likely to have depressed Crown Castle’s booking volumes as well as pricing power in the quarter under review. A highly-leveraged balance sheet is another concern for Crown Castle.

Prior to the fourth-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the fourth quarter moved marginally south to $1.48, over the past 30 days.

For full-year 2019, Crown Castle expects site-rental revenues of $4,950-$4,980 million. Adjusted EBITDA is projected at $3,393-$3,423 million. The company’s FFO is anticipated in the $2,363-$2,393 million range. Also, AFFO is projected at $2,464-$2,494 million.

The Zacks Consensus Estimate for full-year FFO per share is currently pinned at $5.96, indicating a year-over-year increase of 8.8% on revenues of $5.9 billion.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Crown Castle this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Crown Castle carries a Zacks Rank #4 (Sell) and Earnings ESP of 0.00%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Prologis, Inc. PLD currently carries a Zacks Rank of 2. The company’s FFO per share estimate for 2020 has been revised 2.5% upward to $3.72 in a month’s time. The stock has rallied 4% in three months’ time.

Public Storage’s PSA Zacks Consensus Estimate for the current-year FFO per share remained unchanged at $10.99 over the past month. Shares of this Zacks #2 Ranked company have gained 6.8% over the past three months.

Boston Properties, Inc. BXP also carries a Zacks Rank of 2, currently. The company’s ongoing-year FFO per share estimate moved marginally north to $7.59 in a month’s time. The stock has rallied 4.2% in the past three months.

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

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