Should You Hold Crown Castle (CCI) Stock in Your Portfolio?

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Crown Castle International Corp.CCI has been making concerted efforts to reposition itself from a tower company to a fiber provider, focusing on the small-cell opportunity, backed by fiber operator acquisitions. Amid ever-changing developments in new technology which may reduce demand for site leases and inflate expenses, such business diversification augurs well for long-term profitability.

The company, which currently has more than 40,000 well-located cell towers and around 60,000 route miles of high capacity fiber, has been making strategic buyouts to fortify its position as one of the largest fiber network operators in the United States. Its acquisitions in recent years include FPL FiberNet Holdings, LLC (in January 2017), Wilcon Holdings LLC (in June 2017) and LTS Group Holdings LLC (Lightower) (in November 2017). Particularly, the Lightower acquisition has enabled the company to gain around 32,000 route miles of fiber located mainly in top metro markets in the Northeast, including Boston, New York and Philadelphia. Further, such strategic deals offer better opportunities for small-cell network deployments in these markets.

Moreover, deployment of 5G aids wireless carriers to expand and improve their networks by providing coverage, capacity and speed, which is needed to support mobile video, Internet of Things (IoT) and fixed wireless broadband. This, in turn, is anticipated to fuel revenues for Crown Castle's tower and small-cell assets.

Crown Castle's second-quarter 2018 adjusted funds from operations (AFFO) per share of $1.31 compared favorably with the prior-year figure of $1.2. Net revenues for the quarter amounted to $1.33 billion and marked year-over-year jump of 28%. Results reflected increase in site-rental revenues. The company continues to benefit from its extensive tower portfolio, high demand for infrastructure and slew of fiber-operator buyouts.

In addition, a hike in the 2018 outlook by management during the Q2 earnings release instills confidence in the stock. Specifically, the company expects site-rental revenues of $4,673-$4,703 million, denoting a projected increase of $26 million at the mid-point from the previously-issued outlook. Adjusted EBITDA is anticipated in the band of $3,132-$3,162 million, reflecting an uptick of $27 million at the mid-point. The increases to site-rental revenues and adjusted EBITDA mainly reflect higher expected contribution from straight lined revenues. Additionally, management reaffirmed its commitment to deliver dividend per share growth of 7-8% per year, in addition to meeting capex requirements for its business.

Also, shares of this Zacks Rank #3 (Hold) company have outperformed the industry it belongs to in the past three months. Crown Castle has gained 9.2%, while the industry has rallied 5.4%.

Nonetheless, further advancement of technology is expected to bring down demand for site leases. In fact, recent developments in satellite-delivered radio and video services will likely reduce need for tower-based broadcast transmission, while changes in demand for network services might expose Crown Castle's revenues to volatility. Moreover, as mobile handset manufacturers and wireless carriers increasingly adopt the Voice over WiFi network technology, the company's revenues are feared to be impacted.

In addition to the above, high customer concentration remains a headwind. While the company's top four customers - Verizon Wireless, AT&T, Sprint, and T-Mobile - account for majority of its total revenues, AT&T contributes a handful of site rental revenues. Hence, loss of any of these customers or consolidation among these will significantly impact the company's top line.

Stocks to Consider

Better-ranked stocks in the REIT space include Condor Hospitality Trust, Inc. CDOR , Park Hotels and Resorts, Inc. PK and Life Storage, Inc. LSI . All three stocks carry a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Condor Hospitality Trust's Zacks Consensus Estimate for 2018 FFO per share has been revised 0.9% upward over the past 30 days.

Park Hotels and Resorts' FFO per share estimates for 2018 inched up 1.4% in 30 days' time.

Life Storage's FFO per share estimates for the current year moved 1.3% north in the past 30 days to $5.44.

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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