Choosing the Right Telecom Tower Giant: Crown Castle vs. American Tower

Large Caps 5 replies 0 votes 1056 views Tags:  Company ComparisonCrown CastleData TransmissionInvestmentTelecommunicationTower Ownership
Soap Khan 6 months

Over the years, I've developed a preference for companies with straightforward business models. They tend to offer solid fundamental performance and are easier to grasp. One such business model revolves around owning telecommunication assets. When thinking about this field, two prominent names come to mind: American Tower (NYSE:AMT) and its competitor, Crown Castle (NYSE:CCI). These companies play a crucial role in data transmission by owning and operating data transmission towers. While both companies are compelling prospects, Crown Castle stands out as the superior choice in various aspects.

Let's get acquainted with our contenders. You're probably already familiar with these companies, but a quick overview can't hurt. Both operate in the same industry, owning and operating towers that facilitate data transmission—a vital function in our interconnected world. In terms of sheer tower count, American Tower takes the lead with over 226,000 towers, including operated ones. In contrast, Crown Castle owns around 40,000 towers.

While this tower count difference might seem significant, it's important to note that about 78,000 of American Tower's towers are in the Asia-Pacific region, contributing only 10.1% of its revenue. So, the companies are closer in size than tower counts suggest.

They also dabble in other assets like fiber and small cell networks. Crown Castle boasts around 85,000 route miles of fiber and 120,000 small cells, facilitating efficient communication in densely populated areas. American Tower, on the other hand, invested substantially in data centers through its acquisition of CoreSite. This move cost $10.1 billion and expanded CoreSite's operations from 25 to 28 locations.

Now, let's dive into the reasons why you might consider American Tower. First, it's a larger company, reporting $10.71 billion in revenue for 2022 compared to Crown Castle's $6.99 billion. American Tower also witnessed stronger revenue growth over the past three fiscal years—33.2% compared to Crown Castle's 19.6%.

American Tower enjoys a global footprint, with presence in the Asia-Pacific, Africa, Europe, and Latin America. It's exploring a potential sale of its India-based towers for around $4 billion, a move that could further shape its future.

The company's emphasis on data centers could attract investors eyeing this $279.5 billion market (2022 size) set to grow to $565.5 billion by 2032. However, American Tower's data center operations only accounted for 7.5% of its recent revenue.

Despite these strengths, my perspective leans towards Crown Castle. Let's explore why. In terms of profitability, Crown Castle shines with a net profit margin of 24% in 2022, surpassing American Tower's 16.5%. Almost every profitability metric for Crown Castle improved year-over-year, except for FFO margin, which stood at 48.1% compared to American Tower's 49.3%.

Crown Castle also offers a more enticing yield at 6.29%, significantly higher than American Tower's 3.53%. This yield difference is due to Crown Castle's higher payout ratio and its steeper stock decline over the past year—43.1% versus American Tower's 33%.

Leverage is another factor favoring Crown Castle, with a lower net leverage ratio of 4.96 compared to American Tower's 5.24. This translates to lower risk for Crown Castle.

Regarding valuation, Crown Castle remains a strong contender. Its valuation metrics point to potential upside—58.8% using the price-to-adjusted operating cash flow multiple and 80.5% with the EV to EBITDA approach—assuming it reaches American Tower's trading multiples.

In conclusion, while both American Tower and Crown Castle are exceptional companies, Crown Castle holds the edge. Its superior profitability, appealing yield, lower leverage, and favorable valuation make it an enticing prospect. American Tower, while still strong, comes with a higher price tag and different strategic considerations. If you're seeking an efficient operation, attractive yield, and a bargain, Crown Castle is a compelling choice to consider.

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