Crown Castle Earnings: Lighter Carrier Spending Results in Guidance Cut, May Portend Slower 2024

Crown Castle CCI reported a good second quarter, as organic tower leasing growth was slightly better than we anticipated. Fiber leasing fell short of what we expected, as small cell sales growth—which we expect to accelerate—remained muted, and fiber solutions continued to struggle. While Crown did not revise its full-year site leasing revenue guidance, it cut its profit forecasts slightly because of lower tower activity from the carriers, which affects nonrecurring services revenue. More impactful in our view is the effect this year’s activity will have on next year’s new leases. We are modestly reducing the level of acceleration we had projected for next year, leading us to lower our fair value estimate to $137 from $140.

Organic tower sales growth was nearly 6% year over year, but the pace should slow in the second half, considering that tower activity across major carriers declined considerably in the second quarter. Our broader view has not changed at all. It was well-advertised that U.S. carrier capital spending would decline in 2023, which leads to fewer new leases with tower companies. For the long term, we continue to expect 5%-6% average annual leasing growth—below the 6%-7% that Crown achieved in 2021 and 2022—as carriers still need to invest in their networks to meet the growth in mobile data demand, which we don’t expect to slow. We now project tower leasing growth to be the same in 2024 as 2023, about 5%.

The fiber business, which consists of small cell and fiber solutions leasing, continues to post underwhelming results, but we thought commentary on the small cell business was encouraging. Management said it expects double-digit annual revenue growth beginning in 2024, and it said most of the 60,000 small cell nodes in its backlog will be co-located rather than requiring new fiber builds. These are the types of results, if achieved, that would bolster rather than weigh on consolidated results, which the small cell business has done since its inception.