Morgan Stanley: Hold CSAL, Sell Windstream

In a report published Tuesday, analysts at Morgan Stanley initiated coverage of

with an Equal-Weight rating, while maintaining their Underweight rating on

. The price target has been set to $28 for Communications Sales & Leasing and to $9.50 for Windstream. Communications Sales & Leasing (CS&L) has begun trading on April 27, following its spin-off from Windstream. The analysts believes that the latter stock deserves to trade at a discount to its RLEC peers, since it does not own any network assets, has higher operating leverage and the current uncertainly in its revenue/EBITDA trends. However, the spin-off of CS&L has helped Windstream reduce its debt by over $4 billion, which has helped create "additional financial flexibility to increase network investments," the analysts said. According to Morgan Stanley, "Windstream will retain operational control of the network by leasing the assets from CS&L via a long-term, triple-net lease agreement." Although Windstream is currently CS&L's sole tenant, the latter company intends to diversify its tenant base in future. CS&L is benefiting from an optimized tax and capital structure at present, as well as an increase in valuation. The company "will benefit from a lower cost of capital, which will help CS&L as it works to grow its asset base. As long as CS&L maintains its REIT status, it will not be subject to federal income taxes," the analysts added.