Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Crown Castle International (CCI) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): Crown Castle International Corp. (CCIC) owns, operates and leases shared wireless infrastructure, including towers and other structures, such as rooftops (towers); distributed antenna systems (DAS, and interests in land under third party towers in various forms (third party land interests) (unless the context otherwise suggests or requires, references herein to wireless infrastructure include towers, DAS and third party land interests). Its core business is renting space or physical capacity (collectively, space) on its towers, DAS and, to a lesser extent, third party land interests (collectively, site rental business) through long-term contracts in various forms, including license, sublease and lease agreements (collectively, contracts). In December 2013, AT&T Inc. announced that it had closed the transaction to lease rights to approximately 9,000 of its Company-owned wireless towers to Crown Castle International Corp., as well as the sale of approximately 600 AT&T towers.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – FAIL
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$2.54|
|Value Based on 0% Growth||$1.49|
|Market Implied Growth Rate||209.66%|
|Net Current Asset Value (NCAV)||-$38.24|
Balance Sheet – 12/31/2013
Earnings Per Share
Earnings Per Share – ModernGraham
Crown Castle International does not qualify for either the Defensive Investor or the Enterprising Investor. In fact, the only requirement of the Defensive Investor which the company passes is the size requirement. For the Enterprising Investor, the company passes both the earnings growth requirement and dividend payment requirement. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of MG Stocks & Screens and 5 Low PEmg Companies for the Defensive Investor. From a valuation perspective, the company needs to show continued positive earnings before its valuation will be attractive. As it stands, the company has grown its EPSmg (normalized earnings) from -$0.58 in 2009 to $0.18 for 2013, which is a strong level of growth; however, since the current year’s EPSmg is only $0.18, the ModernGraham valuation model has returned an estimate of intrinsic value that is well below the market price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. What do you think? What value would you put on Crown Castle International (CCI)? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens? It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: The author did not hold a position in Crown Castle International (CCI) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from wikipedia; this article is not affiliated with the company in any manner.