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On Friday, Scotiabank (TSX:BNS) analyst Maher Yaghi adjusted the price target for Crown Castle (NYSE:CCI) shares, reducing it to $99.00 from the previous $102.00, while maintaining a Sector Perform rating on the stock. The prominent Specialized REITs player, currently trading at $95.09, shows mixed signals with a high P/E ratio of 33.7x and P/B multiple of 7.8x. According to InvestingPro analysis, the stock appears overvalued at current levels. Yaghi’s evaluation came after a review of the company’s full-year performance and future prospects.
Crown Castle’s tower organic growth for the year matched management’s expectations at 4.5%. With an overall Financial Health score rated as "GOOD" by InvestingPro, and a solid gross profit margin of 72.2%, Yaghi anticipates that this growth momentum will persist into fiscal year 2025. However, a significant increase in reported site rental revenues is not expected until 2026 due to anticipated Sprint cancellations in 2025.
The fiber segment of Crown Castle’s business has also been under scrutiny. The company recently announced the sale of its fiber operations to EQT (ST:EQTAB) and Zayo for $8.5 billion, a figure that aligns with market expectations. Yaghi noted that the sale multiple was below Crown Castle’s current trading multiples, which he believes is dilutive to the company’s valuations.
In light of these developments, Yaghi has revised the 2025 forecasts to reflect the fiber business sale and the updated guidance for the tower segment. The new price target of $99 reflects these adjustments and the analyst’s outlook for the company’s performance.
In other recent news, Crown Castle has made significant strategic moves, including the sale of its fiber and small cell business for $8.5 billion to EQT and Zayo. This transaction is part of Crown Castle’s plan to focus on its core domestic tower operations, with expectations of using $6 billion of the proceeds to reduce debt and $3 billion for share buybacks. The company has also announced a reduction in its annual dividend to $4.25 per share, aligning future increases with a cash AFFO/share payout ratio of 75-80%. Despite a $5 billion goodwill impairment charge, Crown Castle reported a 4.5% consolidated organic growth for 2024, with structural cost reductions amounting to $100 million annually. Analysts have responded positively to these developments, with Raymond (NSE:RYMD) James upgrading Crown Castle to Strong Buy and setting a price target of $122, while KeyBanc Capital Markets raised its rating to Overweight with a $120 price target. Citi also adjusted its price target to $108, maintaining a Buy rating, citing the potential benefits from the asset sale and share buyback program. Crown Castle’s future performance will be closely watched as it transitions to a pure-play tower company, with projected tower revenue growth of 4.5% in 2025.
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