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Crown Castle – A Quick Overview of the Stock

We've been asking ourselves recently if the market has placed a fair valuation on Crown Castle. Let's dive into some of the fundamental values of this large-cap Real Estate company to determine if there might be an opportunity here for value-minded investors.

Crown Castle's Valuation Is in Line With Its Sector Averages:

Crown Castle owns, operates and leases more than 40,000 cell towers and approximately 90,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 25.55 and an average price to book (P/B) ratio of 2.1. In contrast, Crown Castle has a trailing 12 month P/E ratio of 31.3 and a P/B ratio of 7.37.

When we divide Crown Castle's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -3.4. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.

Exceptional Profitability Overshadowed by Excessive Leverage:

2018 2019 2020 2021 2022 2023
Revenue (MM) $5,370 $5,763 $5,840 $6,340 $6,986 $7,071
Revenue Growth n/a 7.32% 1.34% 8.56% 10.19% 1.22%
Operating Margins 26% 27% 32% 32% 35% 34%
Net Margins 12% 15% 18% 18% 24% 22%
Net Income (MM) $622 $881 $1,056 $1,158 $1,675 $1,552
Net Interest Expense (MM) $16 $21 $31 -$17 $699 $820
Depreciation & Amort. (MM) $1,527 $1,572 $1,608 $1,644 $1,707 $1,745
Earnings Per Share $1.23 $1.79 $2.35 $2.53 $3.86 $3.58
EPS Growth n/a 45.53% 31.28% 7.66% 52.57% -7.25%
Diluted Shares (MM) 417 418 425 434 434 434
Free Cash Flow (MM) $761 $641 $1,431 $1,560 $1,568 $1,642
Capital Expenditures (MM) $1,739 $2,057 $1,624 $1,229 $1,310 $1,456
Current Ratio 0.82 0.63 0.56 0.62 0.45 0.44
Total Debt (MM) $16,682 $18,121 $19,280 $20,629 $21,729 $22,730
Net Debt / EBITDA 5.64 5.73 5.49 5.58 5.22 5.46

Crown Castle has strong operating margins with a positive growth rate and generally positive cash flows. Additionally, the company's financial statements display rapidly growing revenues and decreasing reinvestment in the business and a strong EPS growth trend. However, the firm suffers from not enough current assets to cover current liabilities because its current ratio is 0.44 and a highly leveraged balance sheet.

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.

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