Crown Castle (CCI) Q2 Earnings Preview: Will It Surprise?

Crown Castle International Corp. (NYSE:CCI) , a leading wireless communication tower operator in the U.S., is scheduled to report its second-quarter 2016 financial numbers on Jul 21, after markets close.

Last quarter, the company posted an impressive 8.26% positive earnings surprise. Moreover, the company’s earnings have surpassed the Zacks Consensus Estimate in two of the past four quarters, with an average beat of 0.06 %. Let’s see how things are shaping up for this announcement.

CROWN CASTLE Price and EPS Surprise

CROWN CASTLE Price and EPS Surprise | CROWN CASTLE Quote

Factors at Play

Crown Castle is expected to benefit from its extensive tower portfolio, increased demand for the company’s infrastructure, strong business outlook, healthy leasing activity, continual acquisition of towers and growing demand for mobile broadband. Moreover, wireless consumer demand has increased, driven by increased innovation and adoption of data-driven mobile devices and applications such as machine-to-machine (M2M) connections, social networking and streaming of video.

Crown Castle’s long-term (typically 5-10 year) tower lease agreements with the top four U.S. carriers - Verizon Communications Inc (NYSE:VZ)., AT&T Inc. (NYSE:T) , Sprint Corporation and T-Mobile US Inc. (NYSE:T) , contributes almost 88% of its revenues.

Crown Castle also purchased Quanta Services (NYSE:PWR)' Sunesys, a major fiber service provider, to strengthen its fiber holdings and control more of the world's telecommunications traffic. Apart from acquiring Tower Development Corp. for $461 million, the company also focused on gaining ownership of the land under its towers, which can be given out on lease for a longer term. This will fetch higher margins. As network capacity and speed increases, services such as mobile video, the connected car, and on a broader spectrum, the Internet of Things and demand for Crown Castle’s infrastructure will spur revenue growth.

Consolidation in the wireless industry may reduce demand for cell tower deployments and therefore is expected to have an adverse effect on Crown Castle’s top line. However, new technologies may reduce the demand for site leases. Also, owing to its expansive international presence, Crown Castle remains highly exposed to foreign currency risks. The company is also exposed to high customer concentration risk.

Earnings Whispers

Our proven model does not conclusively show that Crown Castle is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Crown Castle has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.10.

Zacks Rank: Though Crown Castle’s Zacks Rank #3 (Hold) increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum

Stock to Consider

Here is a company that you may consider as our model shows that it has the right combination of elements to post an earnings beat this quarter.

Qualcomm Inc. (NASDAQ:QCOM) with an Earnings ESP of +3.61% and a Zacks Rank #2.