Crown Castle’s CCI efforts to augment its tower business and fiber and small cells bode well amid the rising wireless connectivity use. A healthy balance sheet position will likely support its growth endeavors. A solid revenue base is likely to support its dividend rate over time.

However, customer concentration and consolidation in the wireless industry raise concerns. Substantial debt burden and high interest expenses add to its woes.

What’s Aiding Crown Castle Stock?

The wireless data consumption is expected to increase considerably over the next several years, driven by the advent of next-generation technologies, including edge computing functionality, autonomous vehicle networks and the Internet-of-Things, as well as the rampant usage of network-intensive applications for video conferencing and cloud services and hybrid-working scenarios. 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.

CCI’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.

CCI’s strong internally generated cash flow, supported by its tower and fiber segments, is impressive. The company has long-term tower lease agreements with top U.S. carriers, which contribute to recurring site rental cash flows over the long term, while contracted rent escalators offer embedded growth. Moreover, a strong and creditworthy tenant base adds resiliency to its business.

CCI has sufficient liquidity and a decent balance sheet position. The company exited the third quarter of 2024 with cash and cash equivalents of $194 million. As of Sept. 30, 2024, it had $7 billion of undrawn funds available under its senior unsecured revolving credit facility and a net debt to annualized adjusted EBITDA of 5.5x.

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 6.38%. 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 1.8% 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 its current-year interest expenses.

Shares of this tower REIT, currently carrying a Zacks Ranks #3 (Hold), have fallen 8.7% in the past month compared with the industry’s 5.4% decline.

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Stocks to Consider

Some better-ranked stocks from the REIT sector are Terreno Realty TRNO and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

The consensus estimate for Terreno Realty’s 2025 FFO per share has been revised marginally northward over the past month to $2.67.

The Zacks Consensus Estimate for CUZ’s 2025 FFO per share has been raised marginally over the past month to $2.74.

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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