Original Recommendation

Crown Castle International Corp.

Crown Castle International Corp. (CCI)

our opinion

buy

current price

$139.25

target price

$175.00

market cap

$60.5B

div yield

3.39%

  • CCI is the picks and shovels play in the 5G revolution. It owns more than 40,000 cell towers, 65,000 small cells, and 75,000 miles of fiber.

trade details

You’ve likely heard about the “5G” revolution.

5G refers to the “5th generation” of wireless communication. This technology is used to help devices communicate with each other at super fast speeds.

The catalyst to build out the 5G network takes a lot of fiber optics.

You’re reading this most likely due to fiber optics. These thin glass or plastic cables transmit light at very fast speeds. Fiber-optic cables actually use reflection to transmit the data from endpoint to endpoint.

In a nutshell, it’s what lets you stream Netflix from your TV.

Only 13% of the U.S. has fiber optic access. But that number will continue to grow over the years.

It must.

Fiber-optics and 5G are 10-100x faster than current 4G speeds.

These speeds will help facilitate the “Internet of Things” – which will bring autonomous driving mainstream. It’ll stream movies on your phone in milliseconds. Transmit data from Tokyo to New York City in milliseconds. Help us solve and tackle deadly diseases and simplify our complex healthcare system.

5G speeds will help usher a new technological revolution we can’t even fathom.

Susan Crawford, author of “Fiber: The Coming Tech Revolution-and Why America Might Miss It” says: “Fiber optic plus advanced wireless is going to be the place where all the new industries for the next 100 years are born, where all the new jobs, all the new ways of making a living, come to being.”

(Asia is beating the U.S. to this race. About two-thirds of Asia will soon have fiber-optic access. Crawford paints an ugly picture about the U.S. telecom companies unwillingness to upgrade. You can read more here.)

However, these telecoms will be forced to upgrade. And upgrade fast.

The geopolitical – and military – ramifications are dire should we not upgrade.

So we’re going to invest in the picks-and-shovels company. Not the telecom companies (AT&T, Verizon, Sprint, etc…) that’ll have to spend tens of billions of dollars building out the fiber-optic lines.

That’s where Crowd Castle International (NYSE: CCI) comes in.

CCI owns more than 40,000 cell towers, 65,000 small cells, and 75,000 miles of fiber.

The major telecoms (Verizon, Sprint, AT&T, and T-Mobile) make up about 3/4 of its rental revenues. These telecoms lease CCI’s towers to transmit its users data across country.

Telecoms like Verizon and AT&T sign CCI to long term contracts. The ever growing demand for users to consume data provides a bit of inelasticity on CCI’s cash flows. CCI has a 28% operating margin.

Things look good for the next decade.CEO Jay Brown mentioned several times that leasing activity was at the highest level he’s seen in the past decade on the most recent conference call.

This allows CCI to pay out a 3.46% dividend with a pretty comfortable margin of safety. Its dividend was just raised 7% – $1.20 per quarter – to $4.80 per year. It expects adjusted funds from operations (AFFO) – the cash flow metric REITs are typically valued on – to be around $6.30 per share. Meaning the payout ratio is a decent 76%.

You don’t need to be concerned about CCI’s increasing debt load. Most of its debts have around 3-4% interest rates and mature in the back half of the 2020s. The one bond we’re monitoring is a 5.25% 2023 loan that it shouldn’t have a problem paying off. CCI has a large revolving credit limit and it could easily refinance now.

Otherwise, CCI is using the debt to buy thousands of acres of fiber-optic lines.

We love CCI from an industry perspective. Valuations are fair, but not cheap.

This means we’re buying CCI more from a technical standpoint versus a value standpoint. Really a bit both.

As the U.S. continues to scale up its 5G infrastructure buildout, CCI will be at the forefront. Service providers (Verizon, AT&T, Sprint, etc…) must compete for consumer business. 5G provides 10-100x faster loading/downloading times. That value proposition to the consumer is undeniable.

We’ll get pay 3.46% along the way.

Buy CCI up to $145. Place no more than 2-3% into this stock. We’ll place a volatility based trailing stop on the name.