CCI - crown castle

As the number of consumers in highly dense, urban areas increases (top 10-15 markets), towers will no longer be able to provide the support necessary for service, so Crown Castle is using smalls cells and fiber to aid with this additional demand. These smalls cells will allow Crown Castle to increase capacity and coverage in cities where towers cannot be constructed.

They provide both indoor and outdoor small cell solutions coupled with over 26,000 miles of fiber. These small cells exist in locations such as on a light pole, in a business building lobby, or at a professional sports arena. This technology allows wireless carriers to deploy their spectrum in the most difficult to reach places and provide additional capacity and coverage in areas where majority of their consumers are located.

Crown Castle has an initial yield of 6-7% on a small cell project and as it increases collocations (adding more carriers to existing small cell infrastructure), these yields also increase. With one additional carrier (one collocation), the yield increases to low-to-mid teens percentage return, and with two additional carriers (two collocations), the yield increases to above 20% (more collocations over time will lead to margin expansion and free cash flow growth).

These contracts with wireless carriers are also long in duration and contain predetermined annual rent increases (generally 2-3% per year). This allows Crown Castle to forecast and increase revenues, and return money to shareholders through its growing dividend.

In addition to capital gains potentially reaped from the aforementioned catalyst, Crown Castle's REIT status allows it to pay out a larger portion of its earnings in the form of dividends. As of right now, the company's yield is 4.35% and management's goals is to increase this 6-7% annually over the next few years. The deployment of new spectrum and annual rent increases will support this goal and grow the yield to my forecast of approximately 4.71% by 2018 (based on $87.78 price as of market close 2/9/17). The longevity of their contracts also allows the company to generate steady revenues and reduces the cyclicality of the cash flows.

Compared to American Tower's (NYSE:AMT) dividend yield of 2.24% (based on price of $105.78 as of market close 2/9/17), Crown Castle's dividend yield is nearly double. Although American Tower seeks to grow their dividend at a higher pace, Crown Castle will still maintain a higher dividend yield for the foreseeable future. This high yield will help generate steady returns and supplement the potential capital gains from the investment.

Risks

The risks of Crown Castle include:

Interest rate risk.
Risk of one of the big 4 wireless carriers filing for bankruptcy and/or a merger.
REITs are generally sensitive to a rising interest rate environment because of the high dividend yield, but Crown Castle is positioned well within the industry because its underlying business model is sound and it has secular tailwinds for organic growth from the telecommunications industry.

The second risk is a bankruptcy and/or merger of one of the big 4 wireless carriers because they represented 90% of Crown Castle's 2015 site rental revenues. The bankruptcy would grant the company protection from its debtors (including tower obligations to Crown Castle) and a merger would mean a consolidation of networks, which may result in more efficient usage of infrastructure. Due to the need for more devices and data in the future, I do not see one of the carriers going bankrupt and a merger seems unlikely because of the already consolidated oligopoly structure of the industry (FTC would more than likely scrutinize a potential deal).

Informative post!

Shilling at its finest. I haven't seen this lvl of shilling in awhile.

Already has a market cap of 34b and a pe of 101...thanks I guess

Literally get a bone thrown to you guys and most of you guys just hate.

Smh

R.i.p