Crown Castle International (CCI) stock is staging a comeback after taking a much harder hit than the broader markets over these past several months.
Shares are down 9.3% over the past three months, but have begun to bounce back modestly over the past week.
Indeed, the telecom infrastructure real estate investment trust (REIT) play, which is best-known for leasing cell towers, is one of the most attractive defensives out there, with a solid growth profile, a hefty dividend yield (currently at 3.2%) and a low 0.4 beta.
With such stellar traits and tailwinds behind the company, its shares have tended to trade at a lofty premium multiple, but after nearly falling into bear market territory, the premium has since contracted.
For that reason, I am bullish on CCI stock, as too are most analysts covering the name. (See Analysts’ Top Stocks on TipRanks)
Growth Ahead
What makes Crown Castle so attractive is that it can sustain double-digit sales growth while keeping a very bountiful yield that can play a significant role in helping investors combat elevated levels of inflation.
However, valuation has typically been a cause for concern in the name until recently (shares currently trade at 12 times sales).
Still, the company has already announced a significant downgrade to its small-cell outlook that some believe warrant recent selling activity in the name, and the potential for further multiple compression due to continued selling pressure in the stock.
The 5G hype surrounding cell towers has been baked into CCI stock for many years now. The company reportedly owns around 40,000 cell towers with 80,000 route miles of fiber cable, making it one of the premier defensive growth plays, as firms look to upgrade to the latest generation of communications technology.
The long-term transition to small cells, though, has been the reason to prefer Crown Castle over some peers.
Small cells are low-powered nodes that pave the way for greater connectivity, especially in dense urban areas. As the 5G boom picks up traction come the economic reopening, the demand for small cells could pick up in a big way.
Crown Castle’s Small-Cell Woes
Although Crown Castle’s small-cell buildout put the company on the right side of an industry trend, such investments have been anything but cheap.
This summer, Crown Castle had to scale back on its small cell investments, cutting its small cell outlook in half through 2022, with a plan to use cell towers over small cells for the time being.
In due time, small-cell momentum will pick up again, but until then, Crown Castle’s towers will have to do more heavy lifting over the medium term.
Yes, a greater emphasis on towers in the early innings of a 5G push is less exciting, but investors looking to get a reasonable price well ahead of the next small-cell push have a chance to do so at today’s relatively modest prices.
Undoubtedly, small cells were the reason to prefer Crown Castle over the pack, and the recent small-cell downgrade has been enough reason to ditch the stock.
Still, the company’s Tower segment, which accounts for a majority of overall revenues, can support a rally in CCI stock, even with half a stride taken out of the step of small cells.
Specifically, Crown Castle has room to improve its Tower margins. If cell towers can pull through, small-cell woes ought to be forgiven, and shares could find themselves making a run back to all-time highs.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, CCI stock comes in as a Moderate Buy. Out of eight analyst ratings, there are five Buy recommendations, two Hold recommendations, and one Sell recommendation.
The average Crown Castle price target is $199.17. Analyst price targets range from a low of $162 per share, to a high of $215 per share.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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