Crown Castle Update

Each week we try to cover 1-2 companies we have discussed in previous podcast|videocast(s) and/or own for clients (including personally).

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With a portfolio of 40,000 cell towers across the U.S., Crown Castle is the nation’s largest provider of shared communications infrastructure. The number one thing to know about CCI is that, like all REITs, it trades on interest rates. When the 10 year yield falls, REITs tend to benefit and CCI is no exception.

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Whether it’s the removal of the Supplementary Leverage Ratio (SLR) or the Genius Act and Stablecoin catalyst, potentially creating $2 trillion of Treasury demand and setting up an Operation Twist style scenario, we’ve been making the case for a lower 10 year yield for quite some time. This view is central to our thesis that dividend yield remains cheap and overlooked, allowing us to add high quality dividend-paying names at fire sale prices. Think CCI (3.85% yield), SWK (4.51%), BAX (2.47%), HRL (3.94%), and DEO (3.92%), to name a few.

The point is, these dividend payers have been ignored and left for dead over the past few years, but that won’t be the case for much longer. Once the Fed wakes up and starts cutting, they’ll be in high demand in short order.

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What you will immediately see is that a good chunk of the ~$7.4 trillion sitting on the sidelines in money markets, earning over 4% yields, will suddenly be forced to find yield elsewhere. At that point, investors will be tripping over themselves to get dividend exposure, and we’ll be more than happy to help them out.

But that’s tomorrow’s newspaper, today. Until then, we’re happy to sit on our hands and wait as CCI and the rest of the high-quality businesses continue to execute accordingly.

That brings us to CCI’s Q2 results. This was another lights-out quarter for CCI, beating both top and bottom-line expectations and raising full-year guidance. The sale of the capital-intensive fiber business remains on track to close in the first half of 2026, leaving CCI as a higher-margin, leaner business and the only publicly traded pure-play US tower company out there.

The next big catalyst will be the announcement of a new CEO (second time’s a charm), and in the meantime, the business continues to hum along with organic growth rates accelerating to 4.7%, the Sprint churn overhang largely gone by the end of 2025, and secular trends in mobile data consumption and 5G driving annual wireless data demand growth of 20 to 30%.

Here’s everything you need to know following Q2 earnings:

10 Key Points

1) Management raised full-year 2025 guidance, increasing site rental revenues by $10 million, adjusted EBITDA by $25 million, and AFFO by $35 million in the updated outlook.

2) Higher leasing activity drove organic revenue growth to 4.7%, adjusted for the $51 million impact from Sprint cancellations. Management continues to expect even stronger leasing activity in the second half of the year.

3) The $8.5B sale of the capital-intensive small cells and fiber solutions business remains on track to close in the first half of 2026, with CCI already securing state-level approvals. Once completed, Crown Castle will become the only publicly traded pure-play tower company focused exclusively on the US.

4) Capital allocation priorities following the Fiber sale remain unchanged. Reducing $6 billion of debt is the top priority. Any remaining cash flow will be directed toward share repurchases. After the sale, management expects to grow the dividend in line with AFFO while maintaining a payout ratio between 75% and 80%.

5) Management remains confident in the rollout of 5G networks, noting that the previous 4G deployment cycle lasted 10 to 12 years and that the 5G cycle is expected to be even longer due to the continued strength of incremental mobile data demand.

6) Carriers continue to report strong results with overall traffic increasing, subscribers growing, and churn rising, all of which typically lead to higher investment activity in wireless networks to keep up with incremental demand.

7) Service gross margins continue to improve, with management raising full-year expectations to $75 to $105 million, an increase of $5 million from the previous outlook. They expect the gains made over the last 6 to 12 months to be structural and sustainable going forward.

8) The board is actively searching for a new CEO, with a decision expected before the Fiber business deal closes.

9) Management remains committed to maintaining an investment grade balance sheet, with approximately 86% of debt at fixed rates, a weighted average debt maturity of over six years, and $4.7 billion of availability under a revolving credit facility.

10) Sprint-related churn is expected to be largely behind CCI by the end of 2025, with management reiterating long-term churn expectations of just 1 to 2%.

Earnings Call Highlights

Albemarle Update

Albemarle is the world’s largest and lowest cost lithium producer. The stock has been on a tear over the past month or so, up close to 40% as lithium prices continue to rebound off multi-year lows. A big part of the story is what’s happening in China.

Over the past couple of weeks, the Chinese government launched a campaign focused on “anti-involution,” a push against self-destructive price wars and excess competition. This move is part of a broader effort to address chronic overcapacity across many sectors and the resulting deflationary pressures.

To the benefit of ALB shareholders and the overall lithium market, China has already begun implementing the plan. Just last week, Chinese regulators ordered the closure of Zangge, a major domestic lithium miner with 11,000 tons of lithium capacity.

This is welcome news for Albemarle, as one of the major drivers of the ongoing supply glut was the flood of small-scale producers in China, many fully subsidized, chasing the record-high lithium prices we saw in 2022.

As expected, the longer prices remain in the pain zone, the more lower-quality, marginal producers will get taken out on a stretcher. ALB management estimated in their last earnings call that about 40% of current global lithium capacity is AT OR BELOW BREAKEVEN, with only around one-third of that supply having come offline so far.

If China is serious about curbing overcapacity, it’s going to be a busy season for stretchers…

And not only are the subsidized players in China getting taken out on stretchers, but so are the geniuses who shorted ALB in the hole back in May. Of the approximately 117.7 million shares outstanding, nearly 20% were short. Short interest has since fallen to ~16%, setting up even more pain ahead.

Keep in mind, despite the past couple of weeks feeling like a “big move” in ALB, the most exciting part is that the train hasn’t even left the station yet. This near 40% rally has come off just a ~15% rebound in lithium prices off the recent lows to ~$9,800 per metric ton. Just wait until the operating leverage really kicks in when prices climb back to the $15,000 to $20,000 per metric ton range. At that point, we’ll be smiling so wide we could eat a banana sideways, and ALB will be minting more cash than they know what to do with.

Zoom out and the “big move” can hardly be seen. This thing is just getting started…

General Market

The CNN “Fear and Greed Index” remained unchanged at 76 this week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked down to 83.69% this week from 86.28% equity exposure last week.

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