Crown Castle CCI owns a portfolio of wireless communication infrastructure assets in the United States. As wireless data consumption is expected to increase significantly over the next few years, service providers are likely to continue their network expansion and densification efforts to meet the requirements, driving demand for CCI’s properties. A healthy balance sheet position is likely to support its growth endeavors.

However, customer concentration and consolidation in the wireless industry raise concerns. High interest rates add to its woes.

Shares of this tower REIT have lost 0.4% in the past six months against the industry’s growth of 8.5%. However, analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its 2024 adjusted funds from operations (AFFO) per share has been raised marginally over the past two months to $6.99.

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What’s Aiding Crown Castle Stock?

The exponential growth in mobile data usage, higher availability of spectrum and deployment of 5G networks at scale are driving significant network investments by carriers who aim to improve and densify their cell sites. Given Crown Castle’s unmatched portfolio of more than 40,000 towers in each of the top 100 basic trading areas of the United States and approximately 90,000 route miles of fiber (as of the third quarter of 2024), it remains well-positioned to capitalize on this upbeat trend.

The company’s investments in fiber and small cell business on the back of acquisitions, constructions and new deployments complement its tower business and offer meaningful upside potential to its 5G growth strategy. Management remains on track to deliver 2024 consolidated organic revenue growth of approximately 5%, including 4.5% in towers, 10% in small cells and 2% in fiber solutions, adjusted for the impact of Sprint Cancellations.

Crown Castle has sufficient liquidity and a decent balance sheet position. As of Sept. 30, 2024, the net debt to annualized adjusted EBITDA was 5.5x. It has limited debt maturities through 2025, with its weighted average debt maturity of seven years. Further, as of the end of the third quarter of 2024, Crown Castle enjoyed investment-grade credit ratings of BBB, BBB+ and Baa3 from Standard & Poor’s, Fitch and Moody’s, respectively, facilitating access to debt markets on attractive terms.

Solid dividend payouts are arguably the biggest enticement for REIT shareholders and Crown Castle is committed to that. It has increased its dividend three times in the last five years and its five-year annualized dividend growth rate is 6.91%. Given that the company’s dividends are supported by high-quality, long-term contracted lease payments, and it benefits from being a provider of mission-critical shared communication infrastructure assets. We expect the dividend payout to be sustainable over the long run.

What’s Hurting Crown Castle Stock?

Customer concentration is very high for Crown Castle. As of Sept. 30, 2024, around three-fourths of the company’s site rental revenues were derived from T-Mobile (35%), AT&T (20%) and Verizon (19%). Loss of any of these customers or consolidation among them will significantly affect the company’s top line.

Moreover, any pullback or rationalization in network spending by carriers might affect Crown Castle’s performance. We project adjusted funds from operations (AFFO) to experience a year-over-year decline of 7.6% and 2.2% in 2024 and 2025, respectively.

Crown Castle has a substantially leveraged balance sheet and a significant amount of debt relative to its cash flows. The company’s debt and other long-term obligations aggregated $23.45 billion as of Sept. 30, 2024. Our estimate indicates a year-over-year rise of 9.7% in the company’s current-year interest expenses.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are SL Green Realty SLG and Highwoods Properties HIW, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SL Green Realty’s 2024 FFO per share has been raised by 1.8% over the past week to $7.79.

The Zacks Consensus Estimate for Highwoods Properties’ current-year FFO per share has moved marginally north in the past month to $3.62.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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