Crown Castle International Corp. (CCI - Get Rating) is a Houston, Tex.-based real estate investment trust (REIT) that owns, operates, and leases more than 40,000 cell towers and approximately 80,000 route miles of fiber supporting small cells and fiber solutions across every major U.S. market. CCI’s shares have gained 21.1% in price over the past year to close yesterday’s trading session at $188.46. However, the stock has slumped 9.7% over the past five days.

CCI’s $5.88 annual dividend yields 3.12% at its current share price. On Oct. 21, CCI declared a $1.47 per common share quarterly cash dividend, representing an increase of approximately 11% over its previous quarterly dividend, which was payable on December 31, 2021, to common stockholders of record at the close of business on December 15, 2021. CCI’s dividend payouts have increased at an 8.5% CAGR over the past three years and at an 8.7% rate over the past five years. The company has a record of seven consecutive years of dividend growth. Furthermore, CCI has a 92.9% dividend payout ratio. Over the third quarter, the company paid common stock dividends of approximately $575 million in total.

The company generates stable shareholder returns. However, the Fed’s plan to raise interest rates this year does not bode well for the company. The Fed’s decision to raise rates could impact CCI’s property values and investment performance. Rising interest rates may cause property values to fall, resulting in weaker total returns.

Here is what could shape CCI’s performance in the near term:

Stable Financial Growth

CCI’s site rental revenues increased 8% year-over-year to $1.45 billion in its fiscal third quarter, ended Sept. 30. Its income from continuing operations stood at $351 million, up 115% from the same period last year, while its income from continuing operations per share increased 113% year-over-year to $0.81. Its adjusted EBITDA was $976 million, indicating an 11% increase year-over-year. The company’s AFFO and AFFO per share were  $767 million and $1.77, respectively, up 15% and 13% year-over-year.

Stretched Valuation

In terms of non-GAAP forward P/E, CCI is currently trading at 71.73x, which is 61.3% higher than the 44.48x industry average. Also, its 14.55 trailing-12-month Price/Rental Revenue ratio  is 60.6% higher than the 9.06 industry average.

Also, CCI’s 27.36x and 29.79x respective forward Price/AFFO and forward Price/FF  are 23.6% and 55.1% higher than the industry averages.

Mixed Profitability

CCI’s 3.99% AFFO yield is 15.4% lower than the 4.72% industry average. Also, its 3.63% FFO yield is 30.9% lower than the industry average, while its 20.18% levered FCF margin is 46.1% lower than the industry average.

However, CCI’s EBIT margin is 28.1% higher than the 23.92% industry average, and its net income margin is 39.8% higher than the 14.48% industry average.

POWR Ratings Reflect Uncertainty

CCI has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Quality, which is consistent with its mixed profitability.

CCI also has a D grade for Value. Its lofty valuation matrices justify the grade.

Of 45 stocks in the  Real Estate Services industry, CCI is ranked #15.

Beyond what I have stated above, one can also view CCI’s grades for Sentiment, Growth, Momentum, and Stability here.

View the top-rated stocks in the Real Estate Services industry here.

Bottom Line

CCI benefited from the low-interest-rate environment over the last year. And the company delivered stable growth in its financials in its most recent quarter. However, the Fed’s decision to raise interest rates this year makes CCI’s near-term prospects uncertain. Furthermore,  the stock looks overvalued at its current price level. Thus, we think it could be wise to wait for a better entry point in the stock.

How Does Crown Castle International Corp. (CCI) Stack Up Against its Peers?

While CCI has an overall POWR Rating of C, one might want to consider looking at its industry peers, Marcus & Millichap, Inc. (MMI - Get Rating), which have an A (Strong Buy) rating, and Jones Lang LaSalle Incorporated (JLL - Get Rating) and Cohen & Steers Inc (CNS - Get Rating), which have a B(Buy) rating.

CCI shares were trading at $190.06 per share on Thursday morning, up $1.60 (+0.85%). Year-to-date, CCI has declined -8.95%, versus a -1.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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