Is Now A Good Time To Buy Crown Castle?

One of the interesting things about investing in the stock market is that often it’s not just important what stocks you buy but also when you buy them matters a great deal.

First-quarter earnings reporting for real estate investment trusts (REITs) has just begun and will run for several more weeks, so investors will be looking for stocks that have performed well recently, regardless of the present price.

Take a look at one REIT that has suffered a significant price decline over the past 16 months but has a very strong history of growth as well as solid dividend performance.

Crown Castle Inc. CCI is a Houston-based specialized REIT that focuses on owning, operating and long-term leasing of cell towers. Crown Castle works with businesses and governments to design and build solutions that meet connectivity needs like wireless coverage and custom fiber optic networks. It has a market cap of $55.97 billion, making it one of the largest REITs in the U.S.

Crown Castle was founded in 1994 with a portfolio of 133 cell towers. Less than 30 years later, Crown Castle has over 40,000 towers, 85,000 miles of fiber and 120,000 small cells — base stations like 5G that are used to enhance cellular network coverage and capacity — in its portfolio. Almost three-quarters of its towers are located in the 100 largest areas of the U.S.

Crown Castle’s initial public offering (IPO) was listed with the symbol TWRS on the Nasdaq Stock Exchange in August 1998, and in April 2001 it was moved to the New York Stock Exchange, where the symbol was changed to CCI.

From its inception to the present, Crown Castle has had an exemplary total return of 2,029.85%, for an average annual total of 13.21%. Over the past five years, Crown Castle has grown its quarterly dividend from $1.05 to $1.565 per share, an increase of 49%. Not many REITs can boast numbers like these for both appreciation and income growth.

But Crown Castle, like many other REITs, has had a difficult time since the beginning of 2022. The 52-week range is $121.71 to $199.97, and its most recent price was just over $129. So, with its share price down and dividend yield up, is now a good time to buy Crown Castle?

On April 19, Crown Castle reported its first-quarter operating results. Funds from operations (FFO) of $1.91 per share beat the analysts’ estimates by $0.02 and was 2.14% better than FFO of $1.87 per share in the first quarter of 2022. Revenue of $1.77 billion beat the Street’s view by $10 million but was only slightly above revenue of $1.74 billion in the first quarter of 2022. Site rental revenue rose 3%, and adjusted earnings before interest, taxes and depreciation and amortization (EBITDA) also rose 1% year over year to $1.1 billion.

Crown Castle also reiterated its full-year 2023 guidance for site rental revenue to be in a range between $6.488 billion and $6.533 billion, adjusted EBITDA of $4.45 billion to $4.49 billion and adjusted funds from operations (AFFO) per share of $7.58 to $7.68.

But the Street was not impressed with the report, and Crown Castle was down more than 4% in the first hour of trading following the earnings release.

Perhaps the Street expects too much from this stalwart REIT. After all, FFO and revenue have stagnated over the past year. But Crown Castle has performed far better than many other REITs that have had large percentage declines in FFO and revenue as a result of inflation and Federal Reserve rate hikes. Does Crown Castle really deserve the 36% beating it’s taken since hitting highs near $200 per share in January 2022?

The analysts don’t seem to think so. Recent analyst reports have greatly improved since the beginning of 2023, when Crown Castle received downgrades from two separate analysts.

On April 18, Morgan Stanley analyst Simon Flannery maintained his Overweight status on Crown Castle, while lowering his price target from $159 to $151. On March 30, MoffettNathanson analyst Nick Del Deo upgraded Crown Castle from Market Perform to Outperform but lowered his price target from $161 to $155. The latter target represents a potential increase of over 21% from its present share price.

One negative for Crown Castle at present is the forward annual dividend of $6.26 per share against funds from operations of $7.74, producing a payout ratio of over 80%. And one could say that the price/FFO is a little high at 17.25.

But there are several positives as well. Short interest at 0.85% is low. Crown Castle’s net debt of $21.76 billion is substantial but not overwhelming. The debt ratio is 0.56, which is reasonable. Eighty-five percent of its debt is now fixed rate with an eight-year weighted average maturity. The present annual dividend yield of 4.85% is well above the five-year dividend yield average of 3.33%.

The weighted average of remaining tenant contract terms is approximately six years. Its largest tenants are T-Mobile, AT&T Inc. and Verizon Wireless, and there is very little competition in Crown Castle’s subsector. The chances are excellent that these communication companies will be Crown Castle customers for many years to come. Long-term tenant contracts have mandatory escalator clauses and lengths of five to 15 years, along with five- to10-year renewals.

The growth in communications over the past two decades has been outstanding and is likely to continue over the years to come. Think of how much cell phone and internet services have expanded and improved since the turn of the century — and the power that is now needed to connect hundreds of millions of these devices across the U.S.

Crown Castle remains one of the stalwart REITs of 2023, and the price downturn of the past year only makes it more appealing for a long-term investor.

Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.

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