Jefferies Adjusts Crown Castle Outlook Amid Market Challenges
Jefferies Downgrades Crown Castle to Hold
Recently, Jefferies made a notable decision, downgrading Crown Castle International Corp (NYSE: CCI) to a hold rating. This move stems from concerns regarding limited upside potential related to the possible sale of its Fiber business and internal challenges, including the churn rate from Sprint and decreasing capital expenditures from carriers.
Potential Impact of Fiber Business Sale
In their analysis, Jefferies pointed out the anticipation of a possible dividend reduction. They estimate the Fiber business could generate between $8-10 billion in a sale, translating to an EBITDA multiple in the range of 6-8x, which falls short of earlier expectations.
Strong Demand for Data Centers
Despite these challenges, there’s encouraging news in the data center sector. Demand remains robust, propelled by the expansion of artificial intelligence capabilities. In 2024, net absorption in leading North American markets reached an impressive 5 gigawatts (GW), a significant growth from just 360 megawatts (MW) reported in 2019.
Challenges and Opportunities
Jefferies also identified supply constraints that the industry faces, notably issues surrounding power availability and construction delays. While these factors pose challenges, they also contribute to an environment of increased rental rates and promising development yields.
Top Picks in the Data Center Sector
Among the available options in the data center sector, Jefferies has singled out Digital Realty (NYSE: DLR) as its top choice. The company shows a strong potential for growth as demand for data center services escalates.
Outlook for Tower Operators
The overall outlook for tower operators, including Crown Castle, appears neutral. Domestic growth is being tempered by a decrease in capital expenditures on 5G. In light of this, Jefferies has expressed a preference for American Tower (NYSE: AMT), highlighting its superior organic growth prospects from international markets and the advantages stemming from its CoreSite data center business.
Investment Outlook for American Tower
Jefferies has maintained a Buy rating on AMT, contrasting this stance with its reduced view on CCI. The firm believes that Crown Castle will need to navigate operational and strategic uncertainties as it moves toward 2025.
Frequently Asked Questions
What prompted Jefferies to downgrade Crown Castle's rating?
Jefferies downgraded Crown Castle due to limited upside potential from its Fiber business sale and operational challenges affecting growth.
What are the estimated values for Crown Castle's Fiber business?
The Fiber business could potentially fetch $8-10 billion, with an EBITDA multiple of 6-8x.
Which company did Jefferies endorse in the data center sector?
Jefferies named Digital Realty (NYSE: DLR) as its top pick in the data center sector.
Why is American Tower preferred over Crown Castle?
American Tower is favored due to its higher organic growth potential and the advantages from its CoreSite data center business.
What is the general outlook for tower operators?
The outlook for tower operators is neutral, with domestic growth impacted by decreased 5G-related capital expenditures.
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