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What's in Store for Crown Castle (CCI) This Earnings Season?

Zacks Equity Research

Crown Castle International Corp. CCI is scheduled to release third-quarter 2019 results on Oct 16, after the closing bell. The company’s third-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 3.50% in the last reported quarter. Results reflected benefits from the company’s extensive tower portfolio, high demand for infrastructure and healthy leasing activity.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed in the other. It delivered an average positive surprise of 1.11% 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-eps-surprise | Crown Castle International Corporation Quote

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

Factors at Play

Crown Castle generates revenues by leasing out its towers and other communication infrastructure assets, including small-cell nodes to wireless service providers. The providers then deploy their equipment on towers to support the wireless services.

Now, over the past quarters, with growing demand for data volume and 5G network deployments, wireless carriers have been expanding and enhancing their networks. This, in turn, is likely to have positively impacted Crown Castle’s top-line growth in the to-be-reported quarter which has an unmatched portfolio of towers, small cells and fiber assets.

Further, the company enjoys incremental sales growth by adding new tenants to existing tower infrastructures, in turn, boosting profit margins. In fact, the Zacks Consensus Estimate for third-quarter 2019 site rental revenues has improved 5.7% year over year to $1,252 million.

Moreover, with mobile devices and connections progressing from lower-generation network connectivity to higher-generation ones, like 4G, LTE and 5G, carrier-network investments have been growing at a rapid pace. This secular growth trend in the cellular tower sector is benefiting tower companies, such as Crown Castle and American Tower Corporation AMT.

Amid this, robust small-cell deployments in the past quarters are anticipated to have boosted the company’s September-end quarter site rental revenues from small-cell deployments by 4.7% year over year to $421 million. In addition, the Zacks Consensus Estimate for the third-quarter site rental revenues from towers is pegged at $831 million, indicating a 6.3% year-over-year increase.

Further, net revenues from network services and other segment are pinned at $216 million for the third quarter, suggesting 13.1% growth from the prior-year quarter’s reported figure.

Aided by estimated year-over-year growth of 6.9% in total revenues to $1.47 billion, Crown Castle’s FFO per share is likely to have witnessed a nearly 6.5% increase to $1.48, during the same time frame, in the September-end quarter.

However, amid favorable industry fundamentals, the company is facing stiff competition from other tower companies. This is likely to have unfavorably impacted Crown Castle’s booking volumes as well as pricing power in the quarter under review. Moreover, a highly-leveraged balance sheet is another concern for Crown Castle.

Lastly, prior to the third-quarter earnings release, there is 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 third quarter remained unchanged at $1.48, over the past 30 days.

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 (Strong Buy) 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 0.00%.

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

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:

Ventas Inc. VTR, slated to release third-quarter earnings on Oct 25, has an Earnings ESP of +0.96% and carries a Zacks Rank of 3, at present.

Public Storage PSA, scheduled to release July-September quarter results on Oct 29, has an Earnings ESP of +1.50% and currently holds a Zacks Rank #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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