Communications Sales & Leasing: Lucky Yield?

• Shares of Communications Sales & Leasing, Inc. CSAL have declined almost 38 percent since they were listed on April 20, 2015.
• Morgan Stanley’s Simon Flannery has upgraded the rating on the company from Equal-weight to Overweight, while lowering the price target from $28 to $22.
• Flannery believes that the selloff in the stock is overdone and that the risk-reward is currently attractive. Flannery also expressed optimism regarding the company’s income stability and deal pipeline.

Analyst Simon Flannery attributes the sharp decline in the share price to increased market and sector concerns, while mentioning that the stock currently offers almost 13 percent yield, which would provide robust downside support.

Communications Sales & Leasing’s dividend is derived from the annual lease payment of a $650 million from Windstream Holdings, Inc. WIN. “While Windstream’s debt has been selling off in the recent high yield market correction, we see good support for the lease payment,” Flannery stated.

With regard to the deal pipeline, “CS&L management is committed to diversifying its revenue mix, and has indicated that it has over 100 potential deals in their pipeline,” the Morgan Stanley report said, while adding however that with six months having passed since the company’s initial listing, “the market has lost some patience.”

Flannery believes that if Communications Sales & Leasing is able to successfully close some transactions, it would help validate the company’s strategy, while helping to diversify its revenue stream and enhance investor interest.