Sell Towers: Morgan Stanley Says US Cellular Should Unload Real Estate, Upgrades Stock

Shares of United States Cellular Corp USM and its majority owner Telephone & Data Systems, Inc. TDS soared almost as high Tuesday as the cell towers the companies own. Those towers are now increasingly valuable given the move to 5G, leading Morgan Stanley to upgrade the two stocks on the attractiveness of the towers to potential buyers.

As a regional wireless company, U.S. Cellular usually isn’t the first player to come up in the conversation about the vanguard of the shift to 5G. But U.S. Cellular is the last carrier that still owns its own cell tower portfolio — a big, valuable asset that’s a critical part of the infrastructure in the advancing industry.

If the company were to sell its more than 4,000 cell towers, it would be a boon to shareholders, Morgan Stanley said in a note upgrading United States Cellular and Telephone & Data Systems, helping push the companies’ stocks up more than 10% each.

The Analyst

Simon Flannery upgraded U.S. Cellular from Equal-weight to Overweight and raised the target price from $44 to $64.50.

Flannery also upgraded Telephone & Data Systems from Equal-weight to Overweight and raised the price target from $33 to $47.50.

The Thesis

The cell tower business is booming with 5G on the horizon, Flannery said. (See his track record here.) 

Flannery is careful to say that Morgan Stanley knows of no pending plan for U.S. Cellular — which is 82% owned by TDS — to sell its tower portfolio, and pointed out in a note on the upgrade that management has been cautious in talking about the towers.

The company’s tower portfolio is “very attractively valued,” with other tower companies booming, the analyst said. 

“With tower valuations at historical highs, we believe that now could be an opportune time for US Cellular to sell their tower portfolio,” he said. “We believe that the timing has never been better for a tower sale and leaseback transaction.”

The towers could be valued at nearly $3 billion, and selling them could be a net $2-billion positive impact — about half the company’s roughly $3.9-billion market cap, Flannery said.

Much of that could be paid out as a special dividend that could be worth more than $25 a share to U.S. cellular stockholders and a little less to TDS shareholders, the analyst said. 

U.S. Cellular management said on an earnings call last year that it is always evaluating its assets, but doesn’t want to do anything to interfere with the company’s network strategy, according to Morgan Stanley. 

Price Action

U.S. Cellular shares were up 14.4% at $50.54 at the close Tuesday. Shares of TDS were up 14.68% at $33.51. 

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