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Can High Carrier Spend Aid Crown Castle's (CCI) Q3 Earnings?

Crown Castle International Corp. CCI is scheduled to release third-quarter 2020 results on Oct 21, after the closing bell. The company’s quarterly results are expected to reflect a year-over-year decline in revenues, while funds from operations (FFO) per share are expected to have remained flat.

The Houston-based real estate investment trust (REIT) missed the Zacks Consensus Estimate in terms of adjusted funds from operations (AFFO) per share by 2% in the last reported quarter. Services and other revenues declined year over year. Nonetheless, growth in site-rental revenues was a bright spot.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion and missed in the other three. It delivered a negative surprise of 2.2%, 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

The 5G hype along with technological advances in mobile devices, the artificial intelligence and the internet of things (IoT) space has put cell tower REITs on the forefront as they play a pivotal role in providing the critical infrastructure needed for making these changes.

Moreover, remote working and online purchases amid the pandemic have increased the demand for cellular data.

Amid these robust tailwinds, Crown Castle’s third-quarter tower leasing is expected to have been driven by a higher capital spent by carriers and network integrations. The company’s presence in the major U.S. markets is also expected to have played a vital role in driving leasing activity in the third quarter.

This is expected to have boosted site rental revenues from towers, which have been witnessing sequential growth over the past four quarters. In fact, the Zacks Consensus Estimate for quarterly site rental revenues from towers is pegged at $887 million, indicating a 2.2% sequential rise.

Moreover, it accommodates multiple tenants on each of its shared communications infrastructure. This is likely to have driven incremental revenues, in turn, boosting profit margins. In fact, the Zacks Consensus Estimate for third-quarter 2020 site rental gross margin is pinned at $965 million, indicating 7.1% growth from the year-ago reported figure.

However, a year-over-year decline in services revenues has emerged as a notable top-line growth headwind for the company over the past few quarters. In third-quarter 2020, anticipated low volume of activities from carriers' network enhancements is expected to have affected the company’s service revenues.

In fact, net revenues from the network services and other segment are pinned at $155 million for the third quarter, suggesting a 39% year-over-year decline.

This is expected to have hindered Crown Castle’s top-line growth in the quarter under review. Notably, the Zacks Consensus Estimate for total revenues is pegged at $1.5 billion, indicating a year-over-year decline of 0.89%.

Additionally, the company has been facing stiff competition from other tower companies amid favorable industry fundamentals. This is anticipated to have depressed Crown Castle’s pricing power in the quarter under review.

Prior to the third-quarter earnings release, there is a lack of solid catalysts for becoming optimistic about the company’s business activities and prospects. Thus, the Zacks Consensus Estimate of FFO per share for the third quarter has been unchanged at $1.55 over the past 30 days.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a surprise in terms of FFO per share for Crown Castle this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here.

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

Crown Castle has a Zacks Rank #3 and Earnings ESP of 0.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

American Tower Corporation AMT, set to report quarterly numbers on Oct 29, currently has an Earnings ESP of +1.44% and a Zacks Rank of 2.

Alpine Income Property Trust PINE, slated to release third-quarter earnings on Oct 21, has an Earnings ESP of +4.48% and a Zacks Rank of 3 at present.

Healthcare Trust of America, Inc. HTA, slated to release third-quarter earnings on Nov 3, has an Earnings ESP of +1.03% and a Zacks Rank of 3 at present.

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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American Tower Corporation REIT (AMT): Free Stock Analysis Report
 
Crown Castle International Corporation (CCI): Free Stock Analysis Report
 
Healthcare Trust of America, Inc. (HTA): Free Stock Analysis Report
 
Alpine Income Property Trust, Inc. (PINE): Free Stock Analysis Report
 
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