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Case for Crown Castle International – NYSE: CCI

Business Description:

Crown Castle International (CCI) owns, operates and leases shared wireless infrastructure, including towers and other structures. Its core business is renting space or physical capacity on its towers through long-term contracts in various forms.

Investment Thesis:

– CCI ended up flat for and the market up over 30% in 2013, CCI could be poised for growth given a number of reasons including its tower deal with AT&T, REIT conversion and aggressive spending on network builds. The stock has also pulled back almost 5% this year, presenting an attractive investment opportunity.

– CCI began operating as REIT on 1-1-14. With this conversion it will initiate a quarterly dividend of $0.35 per share, which it plans to growth at 15% CAGR for the next five years. This is also a competitive dividend with American Tower (AMT).

– AT&T, Verizon, Sprint and T-Mobile are spending a considerable amount to build out their 4G networks. There have been some talks about a move to three major networks, which would be somewhat detrimental to CCI given its US exposure. Looking at how the FTC and DOJ blocked the proposed AT&T/T-Mobile deal, the fear that regulators will allow Sprint and T-Mobile to merge may be over exaggerated. With T-Mobile continuing to gain customers along with Softbank behind Sprint, infrastructure spending should be strong.

– With the $4.85 billion acquisition of AT&T towers, which closed on 12-16-14, CCI became the largest provider of shared wireless infrastructure in the US. The company now expects a 30% increase in new leasing activity in 2014. While CCI does not have the same international exposure as AMT, North America should still provide strong growth. With an average of only 1.7 existing tenants per site, there is plenty of room for growth given other CCI towers and competitors typically average between 2-3 tenants per shared site. Given wireless capex growth at large wireless carriers this could prove a very profitable move as this transaction increases CCI’s tower count by approximately 33%.

– Risks include competition from AMT and SBAC and an unexpected downturn in spending from wireless carriers AT&T, Verizon, Sprint and T-Mobile.

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