Current price: $160 Target price: $190
Position size: 2.5% TTM Performance: 13%
Key takeaways:
- CCI guided to a slower than expected ramp in 2021 tower leasing activity and services, but outlook for small cell bookings in 2021 remains stable. Long-term secular growth dynamics unchanged.
- Despite this, given lower int. expense and capex, they’re on track to generate AFFO/ share growth this year that is consistent with their 7% to 8% target and expect growth to accelerate to 10% in 2021.
- Announced an 11% increase in dividend – ahead of LT 7-8% dividend growth target.
- Higher dividend, emphasis on lower fiber capital intensity and new board members likely a response to Elliot mgmt.
Additional highlights:
- CCI reduced their outlook for 2020 tower leasing activity to $150mn ($170mn – $180mn prior) and reduced their outlook for services revenue in 2020 (by -$50mn). The full rebound in activity on towers is continuing to occur a bit slower and later than mgmt. previously expected, with a portion of the activity they expected to occur in late 2020 shifting into early 2021.
- For 2021, guidance may be conservative given potential for lower Sprint consolidation churn and it doesn’t include a material contribution from Dish in 2021. Outlook for small cell bookings in 2021 remains stable, with mix shift towards colocation nodes.
- They should see improvement in 2022 from C-band spectrum deployment and from a step-up in investment from Dish.
- Beyond that, tower leasing activity will increasingly be driven by spectrum deployment for 5G – particularly w/ small cells.
- iPhone 12 as a catalyst – quote from CEO on call “Last week, we saw an important milestone and the march towards greater network densification, when Apple announced that all iPhone 12 models sold in the US support millimeter-wave spectrum bands…This announcement reminds me a lot of 2007. At the time the wireless carriers in the US had accumulated a vast supply of 3G capable spectrum, but there were no use cases identified requiring that much capacity. At the time phones were used for talking and in limited cases texting. Ringtones were the exciting feature you could download to personalize your device. Then Apple launched the original iPhone and the world changed.” The introduction of the iPhone kicked-off an era of wireless innovation that spurred unprecedented investments in wireless networks.
- The situation is similar now. The new iPhone was launched for spectrum bands that are not yet deployed at scale. The use cases for 5G are few, but as the iPhone 12 proliferates, the installed base grows the incentive for new applications to be created and for the relevant spectrum to be deployed. And the relevant spectrum requires densification (millimeter wave spectrum provides significantly more capacity, but over a fraction of the geographic coverage area) – and densification is a driver of additional leasing on their tower assets and small cells.
- Carriers have ~20X the spectrum capacity they did in 2007, w/ a significant portion yet to be deployed and w/ upcoming (C-band) auctions. C-band is mid-band spectrum and mmWave is high-band, the former can be deployed via towers and small cell but the latter is lower propagation and should primarily be deployed using small cells – both will drive lease up activity for CCI. This should drive improving returns as they expect decreasing capital intensity for growth within their small cell and fiber business.
- Strong balance sheet. No meaningful debt maturities until 2022. Trading at >4% 2021 AFFO yield.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$CCI.US
[category earnings]
[tag CCI]