On July 24, 2023, Crown Castle Inc (CCI, Financial) saw a daily gain of 3.01%, with the stock price closing at $110.51. The company, boasting a market cap of $47.9 billion and sales worth $7.2 billion, has a GF Value of $195.49. However, despite these impressive numbers, GuruFocus's valuation indicates that Crown Castle may be a potential value trap.
Crown Castle is a leading real estate investment trust (REIT) in the United States. With ownership and leases on approximately 40,000 cell towers and over 85,000 route miles of fiber, the company is a significant player in the wireless communication infrastructure industry. Its primary customers, which contribute more than 70% of its revenue, are the three major U.S. mobile carriers.
Understanding the GF Value of Crown Castle
The GF Value of a stock is an estimation of its intrinsic worth, calculated based on historical trading multiples, an adjustment factor from GuruFocus considering past performance and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it is considered overvalued, indicating poor future returns. Conversely, if it is substantially below the GF Value Line, its future return will likely be higher. Based on this analysis, Crown Castle's current price and market cap suggest it could be a potential value trap.
One contributing factor to this classification is Crown Castle's Altman Z-score of 0.82. This score, which falls in the distressed zone, suggests a higher risk of bankruptcy. A safer financial condition would be indicated by an Altman Z-score above 2.99. For a more detailed understanding of how the Z-score measures a company's financial risk, please click here.
Assessing the Financial Strength of Crown Castle
Investing in companies with weak financial strength poses a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. Crown Castle's cash-to-debt ratio stands at 0.01, ranking it lower than 85.5% of companies in the REITs industry. This ratio, along with an overall financial strength rank of 3 out of 10, suggests that Crown Castle's financial strength is relatively poor.
Profitability of Crown Castle
Companies consistently profitable over the long term offer less risk for investors. Crown Castle has been profitable for 10 out of the past 10 years. In the past twelve months, the company reported a revenue of $7.2 billion and Earnings Per Share (EPS) of $3.94. However, its operating margin of 35.58% ranks it lower than 68.62% of companies in the REITs industry. Despite this, Crown Castle's overall profitability is ranked 9 out of 10, indicating strong profitability.
Growth Prospects of Crown Castle
Growth is a vital factor in a company's valuation. Crown Castle's 3-year average annual revenue growth rate stands at 5.3%, which is better than 70.14% of companies in the REITs industry. Its 3-year average EBITDA growth rate is 8%, ranking it higher than 64.66% of companies in the same industry.
Comparing ROIC and WACC of Crown Castle
Another profitability measure is comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC). Crown Castle's ROIC for the past 12 months is 6.38, while its WACC stands at 6.67.
Conclusion
In summary, despite strong profitability and better-than-average growth, Crown Castle (CCI, Financial) might be a potential value trap due to its poor financial condition. For more details about Crown Castle's financials, you can check out its 30-Year Financials here.
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