CCI Rises Today, But Is Still Off 52 Week High.

Shares of Crown Castle (CCI) jumped 0.5 % during today's morning session, bringing their 52 week performance to -24.3%. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account growth metrics and market sentiment -- which can shed light on the stock's long term and short term prospects respectively.

Crown Castle owns, operates and leases more than 40,000 cell towers and approximately 80,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. The large-cap Real Estate company is based in Houston, United States and has 5,000 full time employees.

CCI Has a Higher P/E Ratio Than the Sector Average

Compared to the Real Estate sector's average of 27.16, Crown Castle has a trailing twelve month price to earnings (P/E) ratio of 38.1 and an expected P/E ratio of 36.5. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $3.63 or forward earnings per share of $3.78.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Crown Castle's P/E ratio is higher than its sector average of 27.16, we can deduce that the market is overvaluing the company's earnings.

CCI Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Crown Castle's P/B ratio of 7.8 is higher than its sector average of 2.39, such a margin of safety does not exist for the stock.

Investors Stand to Gain from CCI's Cash Flows

Crown Castle has strong cash flows. With a coefficient of variability of 41.0% and an average growth rate of 37.4%, the company is effectively turning its revenue into cash. We calculate Crown Castle's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a -9.0% rate, versus 3.5% for operating expenses:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 2,727,000,000.0 -1,229,000,000.0 1,498,000,000.0 4.68
2020-12-31 3,055,000,000.0 -1,624,000,000.0 1,431,000,000.0 123.24
2019-12-31 2,698,000,000.0 -2,057,000,000.0 641,000,000.0 -15.77
2018-12-31 2,500,000,000.0 -1,739,000,000.0 761,000,000.0 n/a

Crown Castle's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Crown Castle's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Crown Castle's Gross Margins

Date Reported Revenue ($) Cost of Revenue ($) Gross Margins (%) YoY Growth (%)
2021-12-31 6,340,000,000.0 1,993,000,000.0 68.56 2.9
2020-12-31 5,840,000,000.0 1,949,000,000.0 66.63 1.66
2019-12-31 5,763,000,000.0 1,986,000,000.0 65.54 -0.18
2018-12-31 5,370,000,000.0 1,844,000,000.0 65.66 n/a

Crown Castle's Operating Margins

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 6,340,000,000.0 4,317,000,000.0 31.91 16.12
2020-12-31 5,840,000,000.0 4,235,000,000.0 27.48 -0.47
2019-12-31 5,763,000,000.0 4,172,000,000.0 27.61 3.25
2018-12-31 5,370,000,000.0 3,934,000,000.0 26.74 n/a

Crown Castle's cost of revenue is growing at a rate of 4.0% in contrast to 3.2% for operating expenses. Sales revenues, on the other hand, have experienced a 5.7% growth rate. As a result, the average gross margins growth is 1.5 and the average operating margins growth rate is 6.3, with coefficients of variability of 2.1% and 8.3% respectively.

Crown Castle Benefits From Positive Market Signals

The market sentiment regarding Crown Castle is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $230 to $130. CCI is trading -12.53% away from its target price of $157.94. 1.3% of the company's shares are tied to short positions, and 93.0% of the shares are held by institutional investors.

In conclusion, we see that Crown Castle shares are fairly valued with mixed growth indicators and exuberant market sentiment.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.