Crown Castle Earnings: Little Was Surprising in Muted Quarter, and Rest of Year Should Be Similar

As expected, Crown Castle’s CCI tower sales growth decelerated in the first quarter after record network spending by wireless carriers in 2022. Fiber segment growth was very weak, even as Sprint churn had only a negligible impact during the quarter. However, management maintained its full-year guidance, and small-cell deployments that will occur over the remainder of the year are generally locked in already. With a significant portion of the small-cell pipeline consisting of co-located—rather than anchor—nodes, we’ve become much less bearish on the business. We still don’t expect small cells to rival towers in terms of profitability, though. We’re maintaining our $140 fair value estimate and don’t believe the stock is materially undervalued.

Excluding $48 million that T-Mobile paid for early termination of Sprint’s fiber contracts and the $2 million of associated first-quarter Sprint churn, fiber revenue declined about 1.5% year over year. Lackluster new leasing activity in the fiber solutions portion of the business was the biggest culprit, but management assured investors that its solutions business is not very sensitive to macroeconomic conditions and it expects much better fiber solutions results for the remainder of the year. In the second quarter, we expect another big early termination payment from T-Mobile and corresponding significant small-cell and solutions churn to occur.

Organic small-cell revenue growth was 4.5% year over year. Management said it is on track to deploy 10,000 nodes in 2023, roughly doubling last year’s results. We therefore expect new leasing activity to pick up significantly as the year goes on, leading to much better sales growth, excluding Sprint churn. However, while deployments may be picking up, the firm reported no change in the number of small cells that were already on air or otherwise under contract versus the end of 2022 (120,000).