Is Crown Castle Stock a Buy?

As demand for data explodes, Crown Castle Inc. (NYSE:CCI) stands as a primary beneficiary as the largest provider of shared communications infrastructure in the United States.

The company manages over 40,000 cell towers, around 115,000 small cell nodes, and about 90,000 route miles of fiber across the country’s main markets.

As a result, it supports everything from 5G to the Internet of Things, and a range of smart city projects that depend on strong infrastructure solutions to foster connectivity.

So far this year has been bumpy for Crown Castle shareholders with CCI share price staying above water by just a couple of percentage points. But will the future paint a more lucrative future?

Crown Castle Reports Key Metrics Declining

In FY 2024’s second quarter, Crown Castle management reported a mixed bag of financial results. Net revenues fell by 12.9% compared to the year prior, coming in at $1.63 billion while adjusted EBITDA also fell by 15.3% to $1.01 billion.

Net income fell sharply by 44.8% to $251 million, and that translated to net income per share of $0.58.

Other disappointments were evident in key metrics, such as AFFO and AFFO per share, both of which slid by 21% year-over-year to $704 million and $1.62 respectively.

In spite of these poor results, Crown Castle succeeded in increasing reserves with cash and cash equivalents up to $155 million from $105 million as of December 31, 2023.

So, with a gloomy report under its belt, it’s easy to see why the share price hasn’t exuberant but will the future be better?

What Does The Future Hold For Crown Castle?

Management has reiterated its forecast for the year, which it first shared in June. The leadership team expects to see decreases in site rental revenues, adjusted EBITDA, and AFFO on a year-over-year basis.

Even with these forecasts for future decline, they still believes there will be no change in expectations for organic growth contributions to full-year site rental billings. The company forecasts organic growth of 2% or 5%, excluding the impact of Sprint Cancellations.

The 5% consolidated organic growth, not counting Sprint Cancellations, includes 4.5% from towers, below the 5% figure reported last year. For small cells, it is at 15%. Crown Castle expects to add between 11,000 and 13,000 new billable nodes in 2024, compared to 8,000 in 2023.

Fiber solutions are expected to contribute 2% to organic growth. The company’s small cell organic growth of 15% includes a $25 million increase in nonrecurring revenues related to early termination payments. Excluding this, the expected small-cell organic growth for the year is set to be 10%.

The goals made clear by management are to reach $105 million in AFFO growth at the midpoint, though this calculation does not count the effects of Sprint Cancellations or a non-cash drop in prepaid rent amortization. This planned growth also includes an extra $10 million in costs due to higher operational and advisory expenses from a recent proxy contest.

The company has revised its discretionary CapEx estimate lower and now expects gross discretionary CapEx of between $1.2 billion and $1.3 billion, or $900 million to $1 billion, when considering receiving $355 million in prepaid rent.

Is Crown Castle Doing Well?

When you get into the business of infrastructure REITs, measuring financials is a little different than a standard company. Terms like AFFO, adjusted funds from operations and FFO, or Funds from Operations are commonplace. The latter refers to cash flows from operations while the former is similar but takes into account the costs of maintaining REIT assets.

The company has reported a trailing-12-month AFFO payout ratio is 90.33%, 23.1% higher than the industry average of 73.39% and a trailing-12-month EBITDA margin of 59.93%, 12.2% higher than the sector average of 53.42%.

Its trailing 12-month levered FCF margin is 19.39%, however, which is lower than the industry average of 33.21% by about 41.6% and the trailing-12-month FFO/Yield of 6.41% is also slightly below the industry average of 7.19%.

Is Crown Castle Stock a Buy?

In spite of the mediocre share price performance this year, Crown Castle still does appear to be a buy and analysts forecast a 7% share price decline to $111.95 per share, the consensus estimate.

Looking to the end of the year, analysts see challenges ahead for Crown Castle and predict that revenue will drop by around 6.2% to about $6.55 billion. They expect earnings per share to decrease by about 10.9% to $6.62.

Revenues for FY 2025 are estimated to fall by 1.3% to $6.46 billion, though EPS may well rise by 2.2% to roughly $6.77 in analyst’s eyes. This suggests mixed outcomes for the top and bottom lines in the coming years.

Along with these forecasts, valuation concerns have arisen because the trailing-12-month EV/EBITDA is 18.82x, 8% more than the industry average of 17.44x. Similarly, the company’s trailing-12-month Price/Sales ratio is 6.86x, 47.9% higher than the sector average of 4.64x.

Also, CCI’s trailing-12-month Price/Book ratio of 8.03x is 401.7% more than the industry average of just 1.60x and its trailing-12-month Price/Cash Flow ratio is at 16.37x. This figure stands out as it surpasses the sector’s average of 13.60x by about 20.4%.

Considering these high valuation metrics and varied growth forecasts, 13 of 17 analysts caution a “wait and see” approach is best before investing in Crown Castle stock. Although the company might have growth potential, present fundamentals indicate it could be wise to hold off for a more advantageous entry point in the stock.

Furthering the dull outlook is the fact that 5 analysts have revised their estimates for earnings lower in the upcoming quarter. The future may be a bit brighter with a five year forecast revealing net income is slated to rise by 6.5% annually. That is unlikely to be reflected on the top line, which is only set to ascend at a slow 1.5% rate annually.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.