Zacks_Analysts' Blog : Crown Castle Downgraded to Neutral - Analyst Blog

We have downgraded our recommendation on Crown Castle International Corp. (CCI) to Neutral based on its current valuation, which is trading at significantly high multiples compared to both the S&P 500 average and its peers. Crown Castle’s second-quarter 2011 financial results were mostly in line with the Zacks Consensus Estimates.

Increasing deployment of 3G/4G high-speed triple-play voice, data, and video technology and significant growth of wireless Internet traffic have enabled Crown Castle to report robust results in the last one year. The company continues to perform well with respect to several parameters, including core site rental revenue, gross margin, adjusted EBITDA, and recurring cash flow.

We believe future performance will be driven by the substantial demand for tower space to facilitate high-speed 3G/4G wireless networks. The massive growth of mobile data-enabled devices e.g. smartphones and tablets substantiates this trend.

During the past one and half years, Crown Castle refinanced $6 billion of its outstanding debt and at present has no maturities due before March 2014. This will allow the company to spend more on tower acquisition, new site construction, and land purchase. Moody’s Investor Services upgraded the company’s short-term liquidity rating to 'SGL-1' from 'SGL-2'. The new rating implies speculative investments, indicating Crown Castle has very good cash flow and resources. Fitch Ratings also upgraded the company’s rating to “BB” from “BB-“and maintained its “Stable” outlook.

Nevertheless, Crown Castle faces stiff competition from American Tower Corp. (AMT) and SBA Communications Corp. (SBAC). Evolution of new technologies may also reduce the demand for site leases. The recent strides in satellite-delivered radio and video services will likely lower the need for tower-based broadcast transmission.