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Factors Setting the Tone for Crown Castle's (CCI) Q2 Earnings

Zacks Equity Research
·5 min read

Crown Castle International Corp. CCI is scheduled to release second-quarter 2020 results on Jul 29, after the closing bell. The company’s quarterly results are expected to reflect a year-over-year decline in revenues, while funds from operations (FFO) per share are expected to have remained flat.

The Houston-based real estate investment trust (REIT) missed the Zacks Consensus Estimate in terms of adjusted funds from operations (AFFO) per share by 4.70% in the last reported quarter. Nonetheless, the company witnessed a year-over-year revenue increase, reflecting growth in site-rental revenues.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and missed in the others. It delivered a negative surprise of 0.81%, on average, 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 Price and EPS Surprise

Crown Castle International Corporation price-eps-surprise | Crown Castle International Corporation Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

The ‘stay-at-home’ economy amid the coronavirus pandemic highlighted the urgent need for 5G networks. This acted as a catalyst for cell tower REITs to benefit from outsized 5G opportunity. In fact, navigating the challenges of the coronavirus outbreak, many companies embraced remote working. Further, there has been a sharp increase in online purchases. This spiked the build-out of 5G wireless networks and compelled network carriers to increase spending to address network capacity issues during the quarter under review.

Amid this, tower REITs, which play a vital role in providing the critical infrastructures needed for a seamless connection, are likely to have enjoyed strong demand and leasing activities in the June-end quarter.

As for Crown Castle, the company too is expected to have enjoyed strong leasing activity, given its unmatched portfolio of towers, small cells and fiber assets. Moreover, it enjoys incremental revenue growth by adding tenants to existing tower infrastructures, in turn, boosting profit margins. In fact, the Zacks Consensus Estimate for second-quarter 2020 site rental gross margin is pinned at $954 million, indicating 7.9% growth from the year-ago reported figure.

Also, the Zacks Consensus Estimate for the quarterly site rental revenues from towers is pegged at $1.3 billion, indicating a 7.3% year-over-year increase.

However, net revenues from the network services and other segment are pinned at $120 million for the second quarter, suggesting a 50% year-over-year decline.

This is expected to have impacted the company’s top-line growth in the quarter under review. Notably, the Zacks Consensus Estimate for total revenues is pegged at $1.44 billion, indicating a year-over-year decline of 2.6%.

Further, the merger between T-Mobile and Sprint, which closed in April, is expected to have impacted the company’s new business activity levels in second-quarter 2020.

Additionally, the company has been facing stiff competition from other tower companies amid favorable industry fundamentals. This is anticipated to have depressed Crown Castle’s pricing power in the quarter under review.

Prior to the second-quarter earnings release, there is a lack of any solid catalyst for becoming optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the second quarter has been unchanged at $1.48 over the past 30 days.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Crown Castle this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here.

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

Crown Castle has a Zacks Rank #3 and Earnings ESP of -0.81%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

STAG Industrial Inc. STAG, set to report quarterly numbers on Jul 28, currently has an Earnings ESP of +1.80% and a Zacks Rank of 3.

Iron Mountain Incorporated IRM, slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and a Zacks Rank of 3 at present.

SBA Communications Corporation SBAC, set to report quarterly numbers on Aug 3, currently has an Earnings ESP of +4.48% and 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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Crown Castle International Corporation (CCI) : Free Stock Analysis Report
 
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