Crown Castle International's (CCI, Financial) strong growth profile is being supported by its long-term contracted cash flows, driven by demand for wireless infrastructure. Crown Castle expects approximately $22 billion in contracted future revenues from its four major US wireless carriers.
Headwinds in focus
However, the company is facing many headwinds in tenant non-renewals associated with carrier consolidation. This will certainly have an impact on its revenue this year. This was reflected in its guidance for 2015. It expects its AFFO to grow at the rate of 6% to 7% organically annually. The company expects the strong dividend growth to correspond to its AFFO. Also, it projects about 3% to 3.5% or half of the rise to come from contract escalators under existing contracts and remaining from new contracts and business, which raises concern for the company.
Nevertheless, Crown Castle remains strong to take advantage of growing wireless infrastructure across the world, particularly in the United States. This enhancement in wireless infrastructure should enable the US wireless carrier to upgrade their networks in order to meet the growing demand of wireless consumers across the region.
A lot of opportunity in the cards
According to WinterGreen Research that suggests the smart phone market comprising mobile devices, tablets, and the Internet of things will reach one trillion by 2019. This leads to an allocation install base of approximately 8.5 billion, with people across the world having more than one smart phone. This growth in smartphone market in turn should create theatrical growth for wireless infrastructure. The wireless infrastructure market is expected to grow to $163 billion by 2019 from $58 billion in 2012.
This demonstrates strong growth for US wireless carriers in the future that should eventually drive growth for Crown Castle. It gets about 85% of its revenue from AT&T, Verizon Wireless, Sprint Nextel and T-Mobile. Moreover, Crown Castle has strong product portfolio in wireless tower market. It expects leasing activity from new tenant installations and amendments to existing leases to drive its growth that looks similar to its expectation of 2014. Also, the advancement in build out for LTE should remain growth driver for the company going forward.
It is benefiting from its large carrier tower acquisitions. Its business model of purchasing towers from one carrier and leasing that space to multiple carriers is driving its growth. Also, the tower acquisitions from T-Mobile and AT&T look pretty good. This acquisition of towers is expected to yield about 5% of initial yield from 17,000 towers it has at its fold from these carriers. It expects its lease up program to enhance its yields for its strong portfolio of towers.
Further, the company should benefit from the incredible growth opportunity it has for its small cell networks. The small cell network is growing at a healthy rate across the world. According to a report, published in reportsnreports.com , the LTE wireless infrastructure market is expected to reach $78 billion by 2018 from just $3.9 billion in 2012. Further, the report also states that LTE wireless market will undergo substantial investment.
Therefore, the company should benefit from the small cell networks that the service providers across the world will roll out over the coming years. The service providers are engaged in building out core networks and upgrading backhaul for smart phones to support larger traffic volume. Also, Crown Castle leads the market with approximately 40,000 online that should broaden its chances of getting benefited from the growth of small cells in future.
Conclusion
Crown Castle looks good with the growth of wireless infrastructure. Though its earnings are pressurized in the short-run but its long-term growth prospects look quite appealing. Also, it has raised its dividend that should bring many new investors to purchase its share. The analysts expect its earnings to grow at CAGR of 10.00% for the next five years. This indicates reasonable growth for the stock in in the long-run.
The stock shares cheap valuation. It’s trailing P/E of 145.49 and forward P/E of 17.20 highlights fair growth for the stock in the future. Moreover, it has PEG ratio of 1.83 that continues to support its growth in the next five years. Its balance sheet carries total cash of $238.55 million and has total debt of $11.58 million. Crown Castle has operating cash flow of $1.59 billion and free cash flow of $899.31 million.
