Crown Castle (CCI) to Post Q4 Earnings: What to Expect?

Crown Castle International Corp.CCI is scheduled to release fourth-quarter and full-year 2018 results on Jan 23, after the closing bell. The company's fourth-quarter results are expected to reflect year-over-year growth in funds from operations (FFO) per share, as well as revenues.

The Houston-based real estate investment trust (REIT), which is engaged in operation of wireless communication towers in the United States, surpassed the Zacks Consensus Estimate in terms of adjusted funds from operations (AFFO) per share by 0.72% in the las t report ed quarter. Further, results reflected increase in site rental revenues.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in three occasions and missed in the other. It delivered average positive surprise of 4.66% during this period. The graph below depicts this surprise history:

Crown Castle International Corporation Price and EPS Surprise

Crown Castle International Corporation Price and EPS Surprise | Crown Castle International Corporation Quote

Let's see how things are shaping up prior to this announcement.

Factors at Play

With a portfolio of more than 40,000 cell towers, Crown Castle is well poised to benefit from its shared communication infrastructure assets, in the fourth quarter.

The company's business model is predictable as most of its revenues are recurring and under long-term leases with organic growth from rent escalators. Also, it has tower lease agreements with the top four U.S. carriers - Verizon, AT&T T , Sprint S and T-Mobile TMUS - contributing nearly 74% of its revenues.

For fourth-quarter 2018, Crown Castle expects site rental revenues of $1,189-$1,199 million. The Zacks Consensus Estimate for the same is pegged at $1,198 million. This indicates an increase of nearly 1.2% from the prior-quarter tally. Also, for full-year 2018, management expects site rental revenues of $4,696-$4,706 million.

However, prior to the fourth-quarter earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company's business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the Oct-Dec quarter and full-year 2018 remained unchanged at $1.44 and $5.51, respectively, over the past 30 days.

Furthermore, evolution of new technologies is expected to have hindered demand for site leases as well as demand for the company's communications infrastructure. Additionally, frequent changes in demand for network services and infrastructure support renders volatility to Crown Castle's revenues.

In fact, network services and other revenues from small cells segment is currently pegged at $3.5 million, representing a fall of nearly 70% as compared to prior-year tally.

With the oncoming of 5G network, the increasing shift from traditional backhaul system toward fiber optic cable is expected to have impacted the company's performance. Presently, carriers are incurring high costs to provide high-speed linkages via their fiber-optic cables to cell towers.Although the technology is still in the nascent stages, it has emerged as a major headwind for Crown Castle.

The company has a significant leveraged balance sheet. Its debt-to-equity ratio of 1.33 is higher than the industry's average of 0.88. With a substantial level of indebtedness, the current rising interest-rate scenario may dent the cell-tower-manager's bottom-line performance.

Earnings Whispers

Our proven model does not conclusively show that Crown Castle's results will likely beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. Unfortunately, that is not the case here as elaborated below. You can see the complete list of today's Zacks #1 Rank stocks here .

You can uncover the best stocks to buy or sell before they're reported with the Earnings ESP Filter.

Earnings ESP: Crown Castle has an Earnings ESP of -0.81%.

Zacks Rank: Crown Castle currently has a Zacks Rank of 3.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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