Current price: $180 Target price: $201
Position size: 2.3% TTM Performance: 12%
Key takeaways:
- Beat estimates and issued solid FY22 guidance
- Solid AFFO/share growth – Maintained AFFO/share guidance for FY21, implying +12% YoY growth, meaningfully above their long-term annual target of 7% to 8%. FY22 guidance issued ahead of the street, implying +8% YoY growth.
- Their business is seeing tailwinds as the 5G investment cycle is (finally) ramping – first stages of 5G investments resulting in record level of tower activity. Small cell growth is slower but should improve in later stages of what should be a massive, decade-long investment cycle.
- Dividend raised 11%. Well ahead of long-term dividend growth targets as they are growing the dividend in line w/ AFFO growth.
Additional highlights:
- Quotes from the call: “With history as a guide, we believe the deployment of additional spectrum on existing cell sites will not be enough to keep pace with the persistent 30% plus annual growth in mobile data traffic….As a result, we expect cell site densification to remain a critical tool for carriers to respond to the continued growth in mobile data demand.”
- “When the current cell site upgrade phase shifts to densification phase, we believe the comprehensive offering of towers small cells and fiber will be critical for our customers and provide us with an opportunity to further extend the runway of growth in our business.”
- Seeing record tower growth now; small cell growth will be longer term driver
- Customers upgrading existing tower sites as a part of their first phase of 5G build-out.
- Mid-band (C-band) and high-band (mmWave) spectrum are both are relevant for 5G and will drive lease up activity for CCI.
- Carrier spend is currently focused on deploying mid-band spectrum as this is the first stage of 5G deployment and is often referred to as the “goldilocks” band as it is an ideal balance between bandwidth and propagation (i.e. its ability to carry more data and travel far distances). It can be deployed via towers and small cell, but towers remain the most cost-effective way for carriers to deploy spectrum at scale and establish broad network coverage.
- Carriers just spent a ton (~$90B) at the recent C-band spectrum auctions… and now they’re focused on deploying it.
- This near-term carrier focus is on C-Band deployment is stalling small cell deployment growth.
- Small cells are the next stage…
- High-band (mmWave) spectrum is the next stage and is relevant for what’s often called the “real 5G” which would deliver on the huge gains in performance that 5G promises (step function increase in latency and bandwidth). It has significantly more capacity, but over a fraction of the geographic coverage area (lower propagation) which is why it needs to be deployed using small cells connected to fiber, making it ideal for dense urban areas. This densification is a driver of additional leasing as it’s a critical tool for carriers to accommodate continued growth in mobile data demand b/c it enables carriers to get the most out of spectrum assets by reusing it over shorter and shorter distances.
- Growth in small cells should drive improving returns as they expect decreasing capital intensity for growth within their small cell and fiber business. With small cells there are “anchor nodes” and “colocation nodes” – the first “anchor” nodes are a lower ROI and additional nodes on existing infrastructure have higher incremental margins. So as lease-up activity continues, their ROI improves.
- Balance sheet strength – They continue to methodically reduced the risk profile of their balance sheet. Since they achieved their initial investment grade credit rating over 5 yrs. ago, they have increased average debt maturity from 5 yrs. to >9yrs, reduced average borrowing costs to 3.1% from 3.8% and increased the mix of fixed-rate debt to > 90% from < 70% w/ no meaningful near term debt maturities. So limited near term exposure to rising rates.
- Sustainability/ESG considerations…
- Just announced goal of carbon neutrality by 2025
- “Our business model is inherently sustainable and shared solutions limit infrastructure in the communities in which we operate and minimize the use of natural resources.”
- “Our business finished just one ton of CO2 per $1 billion of enterprise value which is 90 times more efficient than the average company in the S&P 500 based on industry estimates.”
- Their solutions also help address societal challenges like the digital divide in under-served communities by advancing access to education and technology. “To date, we have invested nearly $10 billion in towers, small cells and fiber assets located in low income areas.”
- Enhanced focus on ESG may drive increased revenue opportunities from things like smart cities and “broadband for all” and lower operating costs in areas like tower lighting and electric vehicles.
- Reasonably valued – trading at >4% 2022 AFFO yield. With LT AFFO/share growth of 7-8% and >3% dividend yield, they should compound total returns low double-digits over a long period of time as demand for their shared infrastructure offering is tied to robust mobile data growth (~30% annually).
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]