Crown Castle’s Small Cell Business Remains Murky as Firm Says It Is Turning a Corner; Towers Strong

In keeping with the trend seen throughout 2021, Crown Castle’s fourth-quarter update showed that the tower business is unequivocally strong while small cell results are poor, despite continued management optimism. Although recent news surrounding small cells is noisy and opaque, management sounded confident that 2023 will be an inflection point, supported by its recent deal with T-Mobile. We remain convinced that Crown’s business would be far better if it focused exclusively on towers, but as we made clear last year when we upgraded the firm’s moat rating to narrow, we no longer think small cells will be a big drag on Crown’s returns on invested capital. We believe value-destructive capital spending is now past, and we are adjusting the weighted average cost of capital we use in our valuation to reflect lower risk. As such, we’re raising our fair value estimate by about 20%, to $135, though our forecast has not materially changed.