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Here’s Why You Should Add Crown Castle to Your Portfolio


On Jul 11, 2017, leading wireless communication tower operator Crown Castle International Corp. CCI was upgraded from Zacks Rank #3 (Hold) to Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The price performance of Crown Castle has been impressive over the last three months. The company’s share price inched up 2.39%, outshining the Zacks categorized Reit- Equity Trust Other industry’s decline of 1.81%.

We believe that the upgradation came on the back of Crown Castle’s recent initiatives to expand its small-cell network operations and diversify its business model into fiber network operations.

The latest acquisition of privately-held Wilcon Holdings LLC, a premier service provider of dark fiber, lit transport, internet access and collocation services in Southern California, will enable Crown Castle to attain ownership of over 28,000 route miles of fiber. This will further enhance the company’s dark fiber capabilities in the region for small-cell backhaul. We anticipate that Crown Castle will benefit by leveraging Wilcon's dark fiber assets in the near term.

This is one of Crown Castle's ongoing efforts to diversify its business model from a tower company to a fiber provider (focusing on small-cell opportunity). In the last few years, the company has purchased three fiber operators, FPL FiberNet Holdings, LLC (in Jan 2017), Quanta Fiber (called Sunesys, in Apr 2015) and 24/7 Mid-Atlantic Network (in Sep 2014).

Meanwhile, the company is also planning to expand its existing small-cell network within the next two years. The plan includes an investment of around $1.2 billion and the deployment of 25,000 new small-cell nodes over the next 18–24 months. In accordance with the current market scenario, Crown Castle is pursuing small-cell deployments for its wireless customers. The company is focusing on enhancing its networks to meet robust demand for high-speed, high-capacity wireless services. Using small cells in unlicensed 3.5 GHz band will significantly reduce cost of operations for wireless operators. The 3.5 GHz radio frequency is in demand in many parts of the world for the upcoming 5G wireless standard.

Wireless services are rapidly gaining ground courtesy of additional features and capabilities. Much of its infrastructure and related upgrades require effective site management of cell towers and equipment. Crown Castle effectively addresses this opportunity as over 90% of its quarterly revenues come from wireless service providers like Verizon Communications Inc. VZ, AT&T Inc. T and T-Mobile US Inc. TMUS. The company acquired 9,700 wireless towers from AT&T and has taken over 7,200 wireless towers of T-Mobile US.

The deployment of the upcoming 5G network will drive growth for the company’s tower and small-cell assets as the wireless carriers are expanding and enhancing their networks to provide the coverage, capacity and speed required to support mobile video, the Internet of Things (IoT) and fixed wireless broadband.

Crown Castle’s extensive tower portfolio, increased demand for infrastructure, strong business outlook, healthy leasing activity, continued acquisition of towers and growing demand for mobile broadband are other major positives.

We are also impressed with Crown Castle’s efforts to reward its shareholders with a quarterly cash dividend of $0.95 per common share. The dividend was paid on Jun 30, 2017 to common stockholders of record at the close of business on Jun 16, 2017.

However, the company’s operation in a consolidated wireless industry has reduced demand for cell tower deployment and is therefore expected to dent Crown Castle’s top line. Further, new technologies have reduced demand for site leases. Owing to its expansive international presence, Crown Castle remains exposed to risks related to foreign currency exchange rate. High customer concentration is also a concern for the company’s top line.

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