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What's in the Cards for Crown Castle (CCI) in Q1 Earnings?

Crown Castle International Corp. CCI is scheduled to release first-quarter 2021 results on Apr 21, after the closing bell. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

The Houston-based real estate investment trust (REIT) surpassed the Zacks Consensus Estimate in terms of adjusted funds from operations (AFFO) per share by 41.2% in the last reported quarter. Growth in site-rental revenues aided the top-line performance.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and missed in the other two. It delivered an earnings surprise of 8.8%, on average, during this period. The graph below depicts this surprise history:

Let’s see how things have shaped up prior to this announcement.

Factors at Play

In the first quarter, tower REITs like Crown Castle, American Tower Corp. AMT and SBA Communications SBAC are expected to have continued benefitting from secular growth trends in the wireless industry. Also, as data volume for wireless and wired networks has been growing rapidly amid the widespread adoption of smartphones and applications, network carriers have continued their spending on network deployments in a bid to harness spectrum abilities as well as improve and densify their cell sites and coverage during the first quarter.

As for Crown Castle, its extensive portfolio of 40,000 towers, spread across the top 100 markets in the United States, has been attracting businesses from carriers that are seeking network expansion and densification amid the growing mobile-data scenario.

Moreover, the company has been making efforts to extend its communication infrastructure footprint and has been investing significantly in its fiber segment on the back of acquisitions, and construction of small cells and fiber. In fact, its focus on small-cell leasing along with its urban skew and ability to offer a holistic network solution provides Crown Castle a competitive edge over other tower companies.

This is likely to have facilitated site rental growth in first-quarter 2021.  Moreover, long-term (typically 5-15 year) tower lease agreements with top U.S. carriers are expected to have contributed to recurring site rentals in the March-end quarter. Markedly, the consensus estimate for net revenues from site rentals is pegged at $1.36 billion for the first quarter, suggesting 4.1% year-over-year growth.

Increased tower activity, backed by tailwinds, is likely to have supported Crown Castle’s network services revenues in the first quarter.  In fact, the consensus estimate for net revenues from the network services and other segment is pinned at $134 million for the first quarter, suggesting 20.7% year-over-year growth.

Additionally, the Zacks Consensus Estimate for first-quarter revenues is pegged at $1.5 billion, indicating year-over-year growth of 5.5%.

However, with the merger of T-Mobile and Sprint, Crown Castle is likely to have witnessed churn at overlapping sites of the merged companies. This is anticipated to hinder its tower segment’s performance in first-quarter 2021.

Prior to the first-quarter earnings release, there is a lack of solid catalyst for becoming optimistic about the company’s business activities and prospects. Thus, the Zacks Consensus Estimate of FFO per share for the first quarter has been unchanged at $1.61 over the past 30 days, indicating a 13.4% increase from the prior-year quarter’s reported figure.

Key Developments in Q1

In January, Crown Castle inked a long-term agreement to lease 15,000 new small cells to Verizon Communications Inc. VZ to support the carrier’s 5G Ultra Wideband and 5G nationwide deployment.

Specifically, Verizon will rent out the small cells from Crown Castle over the next four years, with an initial term of 10 years. The agreement is a crucial component of the carrier’s 5G expansion plans and will enable it to advance the infrastructure needed to access 5G.

While this will not materially contribute to Crown Castle’s 2021 revenues, the agreement has significantly increased the backlog of small cells committed or under construction to around 30,000.

Here is what our quantitative model predicts:

Crown Castle has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for SL Green is +1.53%.

Zacks Rank: It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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