Today we're going to take a closer look at Large-Cap Real Estate company Crown Castle, whose shares are currently trading at $111.83. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
The Market May Be Overvaluing Crown Castle's Earnings and Assets:
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 31.12 and an average price to book (P/B) ratio of 2.15. In contrast, Crown Castle has a trailing 12 month P/E ratio of 39.7 and a P/B ratio of 9.18.
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 -8.43. 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.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $5,370 | $5,763 | $5,840 | $6,340 | $6,986 | $6,981 |
| Operating Margins | 26% | 27% | 32% | 32% | 35% | 34% |
| Net Margins | 12% | 15% | 18% | 18% | 24% | 22% |
| Net Income (M) | $622 | $860 | $1,056 | $1,158 | $1,675 | $1,502 |
| Net Interest Expense (M) | $16 | $21 | $31 | -$17 | $699 | $850 |
| Depreciation & Amort. (M) | $1,527 | $1,572 | $1,608 | $1,644 | $1,707 | $1,754 |
| Diluted Shares (M) | 417 | 418 | 425 | 434 | 434 | 434 |
| Earnings Per Share | $1.23 | $1.79 | $2.35 | $2.53 | $3.86 | $3.46 |
| EPS Growth | n/a | 45.53% | 31.28% | 7.66% | 52.57% | -10.36% |
| Avg. Price | $90.4 | $112.86 | $142.7 | $167.72 | $169.73 | $111.95 |
| P/E Ratio | 73.5 | 62.7 | 60.47 | 66.03 | 43.86 | 32.36 |
| Free Cash Flow (M) | $761 | $641 | $1,431 | $1,560 | $1,568 | $1,702 |
| CAPEX (M) | $1,739 | $2,057 | $1,624 | $1,229 | $1,310 | $1,424 |
| EV / EBITDA | 18.28 | 20.7 | 22.62 | 25.43 | 22.98 | 17.3 |
| Total Debt (M) | $16,682 | $18,121 | $19,280 | $20,629 | $21,729 | $22,921 |
| Net Debt / EBITDA | 5.64 | 5.73 | 5.49 | 5.58 | 5.22 | 5.53 |
| Current Ratio | 0.82 | 0.63 | 0.56 | 0.62 | 0.45 | 0.4 |
Crown Castle has generally positive cash flows, decent operating margins with a positive growth rate, and a strong EPS growth trend. However, the firm suffers from not enough current assets to cover current liabilities because its current ratio is 0.4 and a highly leveraged balance sheet. Finally, we note that Crown Castle has growing revenues and decreasing reinvestment in the business.
