Top picks from S&P: Crown Castle International

This tower operator is highly attractive at these prices.

By TheStockAdvisors May 24, 2013 4:12PM

Global communication (© Maciej Frolow/Brand X/Getty Images)(This post is part of a special report featuring 7 Top Picks from S&P Capital IQ.)


By Jim Moorman, S&P Capital IQ, The Outlook

Sector: Telecommunications


Crown Castle International (CCI) owns and operates towers and transmission networks used by wireless communications and broadcasting companies. As of March 30, 2013, it owned, leased, or managed 31,576 towers and rooftop systems, including 29,836 sites in the U.S. and Puerto Rico and 1,740 sites in Australia.


In 2012, 72% of total revenues were derived from its top- four customers -- AT&T, Verizon Wireless, Sprint Nextel and T-Mobile. These accounted for 24%, 20%, 17% and 11% of revenue, respectively.


After a 20% rise in 2012, we expect revenue growth of 24% in 2013, 9% in 2014, and 7% in 2015 reflecting higher tower site rentals, as wireless carriers expand network capacity to handle strong traffic growth from enhanced services, and the acquisition of rights to operate roughly 7,200 towers from T-Mobile USA, which closed in November 2012. Upgrades to networks new carriers providing 4G coverage should also provide a boost.


We expect the operating margin to contract slightly to 58.7% in 2013, from 63.2% in 2012, due to the addition of the lower-margin T-Mobile USA towers.


We then expect margins to expand to 60.8% in 2014 and 62.6% in 2015. We believe the company will generate strong free cash flow, which we see rising to $893 million in 2013, $1,208 million in 2014 and $1,411 in 2015 from $664 million in 2012.


We view the shares as highly attractive, given our expectations for free cash flow growth. We see new market build outs, as well as the build out of 4G/LTE wireless networks, as potential catalysts for growth in 2013.


Additionally, we believe the April 2012 acquisition of NextG Networks -- the largest provider of low-power, distributed antenna systems -- will add to revenue growth, as will the integration of T-Mobile USA towers.


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