Crown Castle (CCI) – One of Top 10 Pick for 2016 is +17.3% YTD

This note was sent to clients on December 28, 2015. Reasons why we like the stock so much:

• Tower Right – Previously, when Crown purchased the rights to the tower portfolios from AT&T and T-Mobile, investors had been worried that such a move would hamper CCI growth by limited ability to monetize spectrum. Turned out that wasn’t the case at all after reviewing management commentary at the Analyst Meeting on November 10. Both AT&T and T-Mobile have generally used up their capacity from these purchase agreements, which should improve Crown’s ability to monetize amendment activity with pending new spectrum deployments by AT&T in 2016. In other words, there is a good chance forward earnings estimates are low.

• Small Cells – The tower industry is moving forward to deploy Small Cells as “next big thing” to serve the needs of ever rising data usage. CCI has first mover advantage over two rivals AMT and SBAC. Time is the largest barrier to entry for small cells as permitting, provisioning, and construction can be 2 year cycle, thus being first to a location can have significant benefits. At the Analyst Meeting on November 10, the company described a high degree of visibility over the next 12-24 months for its small cell strategy and about 75% of incremental revenue generation in 2016 is coming from new deployments. That’s a growth driver not fully baked into consensus view.

• 2G Network Teardown – Carriers are tearing down 2G networks as expected. Carriers could have the option for a like-for-like exchange for retiring equipment, but any difference in configuration or load could trigger incremental amendment activity. FirstNet could be a source of incremental tower amendments as soon as 2017 and it is not baked into current earnings estimates on the street.