CCI Q2 Results

Current price: $170          Target price: $190

Position size: 2.7%           TTM Performance: 31%

 

Key Takeaways:

·         CCI reported mixed 2Q  results. They saw slightly lower than expected revenue and AFFO, but maintained full year guidance.

·         Minimally impacted from COVID-19 given durability of demand for their critical infrastructure and long-term contracted revenues. Tower leasing activity should ramp in 2H20 w/ TMUS merger.

·         Refreshing board and reviewing executive compensation structure following Elliott Management’s letter to the company. During the quarter, Elliott announced a stake and sent an open letter w/ multiple suggestions to the mgmt. team.

 

Additional Highlights:

·         Lower than expected revenue driven primarily by lower services revenue, but this is a timing issue. Mgmt. expects an acceleration in 2H20 as carrier customers invest to improve their existing networks and as 5G starts to ramp – in particular w/  increased TMUS and DISH network activity. “Full rebound in overall industry activity on towers is taking a bit more time to materialize than we previously expected, we remain on track to generate at least 7% growth in AFFO per share this year.”

·         While they responded to Elliott regarding board structure and compensation, they did not disclose a significant change to their business model or capital allocation strategy.

·         Minimal COVID-19 impact.  Construction in small cells and fiber has continued. CCI is working closely with municipalities and state governments to facilitate small cell and fiber deployments. As a provider of critical telecommunications infrastructure that is considered essential to public health and safety, they have continued to construct and install customers on their infrastructure.

·         Customers continue to invest in their networks by deploying additional spectrum and new cell sites to keep pace with the 30% to 40% annual growth in data demand.

·         The company has limited exposure to SMB customers.

·         Site rental revenues +4%

o   Tower leasing (~2/3 of property revenue) – grew 3.2% YoY, poised to benefit from a re-acceleration in tower leasing activity in 2H20 as carriers ramp their 5G network investment and new T-Mobile begins to integrate its network following its merger completion on April 1.

o   Fiber solutions (~1/4 of property revenue) – grew 3% YoY – benefiting from bandwidth upgrades from large enterprises. SMB exposure appears minimal (5% of fiber solutions revenue).

o   Small cells business (~10% of property revenue) – grew 17% YoY

·         Strong balance sheet. No meaningful debt maturities until 2022. During the quarter raised $3.75 billion in senior unsecured notes across two separate offerings with a weighted average maturity and coupon of approximately 17 years and 2.8% to refinance existing debt.

·         Q2 dividend of $500m, +7% YoY

·         Trading at ~3.5% FFO yield and 2.8% dividend yield.

 

 

Sarah Kanwal

Equity Analyst, Director

 

Direct: 617.226.0022

Fax: 617.523.8118

 

Crestwood Advisors

One Liberty Square, Suite 500

Boston, MA 02109

www.crestwoodadvisors.com

 

$CCI.US

[category earnings]

[tag CCI]