An increase in mobile data usage, spectrum availability and high network investments by wireless carriers to deploy 5G networks have led to a rise in demand for Crown Castle Inc.’s CCI properties, positioning it well for growth.
The exponential growth in wireless connectivity usage has made wireless service providers and carriers expand their networks and deploy additional equipment for existing networks to densify their cell sites and coverage to meet the rising consumer demand.
Given Crown Castle’s ability to offer a holistic network solution with towers, fiber and small cells, top U.S. carriers with a strong credit profile continue to enter long-term (typically 5-15 year) tower lease agreements with the company. This is likely to drive CCI’s site rental revenue growth in the upcoming period.
Also, with the increased innovation and adoption of data-driven mobile devices and applications, such as machine-to-machine connections, social networking and streaming of video, wireless data consumption are expected to escalate considerably in the future.
To capitalize on this upbeat trend, Crown Castle has been increasingly investing in new small cell and fiber assets to enhance the network density required for its customers’ wireless networks. CCI expects to double the rate of small cell deployments next year compared with the 5,000 nodes it anticipates putting on air in 2022.
On the balance-sheet front, Crown Castle exited second-quarter 2022 with cash and cash equivalents of $281 million. Moreover, in July 2022, CCI increased the commitments under its senior unsecured revolving credit facility by $2.0 billion to $7.0 billion. Such moves boost its financial flexibility.
With investment-grade credit ratings of BBB-, BBB+ and Baa3 from Standard & Poor’s, Fitch, and Moody’s, respectively, and enough financial flexibility, CCI is well-poised to capitalize on future growth opportunities.
In addition, its trailing 12-month return on equity (ROE) is 18.93% compared with the industry’s average of 3.76%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
However, Crown Castle has a high customer concentration, with T-Mobile TMUS, AT&T T and Verizon VZ accounting for around three-fourths of the company’s site rental revenues. Notably, for the six months ended Jun 30, 2022, T-Mobile, AT&T and Verizon accounted for 37%, 19% and 19%, respectively, of CCI’s site rental revenues.
Therefore, the loss of any of these customers, consolidation among them or a reduction in network spending might hurt the company’s top line significantly.
Crown Castle has a substantially leveraged balance sheet with a significant amount of debt relative to its cash flows, which is concerning.
Also, a hike in interest rates is likely to increase borrowing costs, affecting its ability to purchase or develop real estate.
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