In this article, let's take a look at Crown Castle International Corp. (CCI, Financial), a $26.39 billion market cap company that owns, operates and manages wireless communications sites and broadcast transmission networks.
Smartphones
The firm owned, leased or managed more than 40.000 towers, with sites in the U.S., Puerto Rico and Australia. The main business is the leasing of antenna space on its sites to wireless carriers. If we take into consideration the fact that Smartphones represent more than half of the handsets used in the U.S., we can say that a promising medium-term outlook is going to come.
Cash flow generation
The firm has a fairly predictable cash flow due to its long-term contracts. For this reason, the company has a steady cash flow, which also allows the firm to obtain favorable credit financing conditions. As an example we can mention the $3.1 billion credit facility obtained in 2012 in order to repay a previous credit facility as well as finance the acquisitions of NextG or other assets.
Growing dividend
At the start of this year, the company has begun a strategy similar as American Tower (AMT, Financial). This consists of operating as a Real Estate Investment Trust. The aim is to reach a more tax-efficient base.
Further, this allows it to pay a dividend that yields 2.4% and is ranked lower than 64% of the 681 Companies in the Telecom Services industry, but higher than the one offer by American Tower.
Revenues, margins and profitability
Looking at profitability, revenue grew by 24.17% and led earnings per share increased in the most recent quarter compared to the same quarter a year ago ($0.29 vs. $0.16). During the past fiscal year, the company reported lower earnings of $0.28 vs. $0.64 in the previous year. This year, Wall Street expects an improvement in earnings ($0.94 vs. $0.28). The net income increased by 133.3% when comparedto the same quarter one year prior, from $45.84 million to $106.94 million.
Finally, let's compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| CCI | Crown Castle International | 3.58 |
| IRM | Iron Mountain Inc | 36.85 |
| PSA | Public Storage | 12.13 |
| AMT | American Tower Corp | 19.25 |
| Â | Industry Median | 12.35 |
The company has a current ROE of 3.58% which is lower than the industry median and the ones exhibit by Public Storage (PSA, Financial) and American Tower. In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking those levels or more, Iron Mountain (IRM, Financial) could be the option. It is very important to understand this metric before investing, and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 152.2x, trading at a premium compared to an average of 22.9x for the industry. To use another metric, its price-to-book ratio of 3.90x indicates a premium versus the industry average of 3x while the price-to-sales ratio of 7.50x is above the industry average of 1.76x.
As we can see in the next chart, the stock price has an upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $21.374, which represents a 16.4% compound annual growth rate (CAGR).
Final comment
As outlined in the article, the firm has long-term contracts that reduce operating volatility. Although it has a strong free cash flow generation, we think the stock is in a level which is expensive when compared to the rest of the industry.
Despite Crown is the leading tower owner in the U.S. we believe investors have to wait some time, probably a couple of quarters before buying this stock.
Hedge fund gurus like Jeremy Grantham (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio) added this stock to their portfolios in the third quarter of 2014.
Disclosure: Omar Venerio holds no position in any stocks mentioned
