Why AT&T Is One of Today's Top Dow Stocks

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The markets are eerily quiet this Monday. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) trades sideways with only a few of its 30 member stocks moving more than 1% in either direction.

One of those rare significant moves comes from telecom giant AT&T (NYSE: T  ) , notching the Dow's second-largest gain with a 1.2% jump. AT&T just monetized its network of cellphone towers in a multibillion-dollar deal with Crown Castle International (NYSE: CCI  ) . The agreement follows (way, way behind) a similar deal between AT&T and American Tower (NYSE: AMT  ) made some 13 years ago, leaving Ma Bell with few directly owned and operated cell towers under its vest.

Disguised cell tower

Cell towers often hide in plain sight. Image source: Bill Selak, Flickr.

Crown Castle agreed to buy 600 of AT&T's cell towers and lease the rights to operate another 9,100 towers for the next 28 years, on average. Crown Castle will pay AT&T $4.85 billion up front, then sublease some space on these towers right back to AT&T for at least 10 years.

Crown Castle's latest 10-K filing showed it has 29,800 towers in the U.S. market (including Puerto Rico), so the network just grew by one-third. American Tower, which is Crown Castle's nearest local competitor, manages more than 22,000 American towers.

AT&T doesn't expect the deal to impact its financial results at all. The old American Tower deal categorized the payments as deferred revenue with a very slow drawdown into recognized revenue, and the new contract should look similar.

JPMorgan Chase telecom analyst Phil Cusick recently estimated that AT&T has about 10,000 cell towers in its portfolio. If that estimate was correct, the Crown Castle deal will leave AT&T with a much leaner network structure, leasing nearly every tower.

AT&T investors took the announcement as good news, freeing up cash for network improvements or perhaps a strategic acquisition or two. Cell towers may be cash cows in the long run, as American Tower and Crown Castle have proven, but AT&T clearly prefers a quick payout right now. Add AT&T to your Foolish watchlist to see what AT&T plans to do with this nearly $5 billion cash infusion.

Crown Castle's shares actually retreated more than 1% on the news, regardless of the long-term cash-flow value the deal unlocks. The agreement will put some stress on Crown Castle's already debt-laden balance sheet. Investors must balance this fundamental risk against potential long-term cash gains, and many shareholders are landing on the "nervous" side of that analysis today.

You should invest like AT&T, dear Fool
The extremely long-range terms of the AT&T-Crown Castle deal show that the companies plan to be around for the long run. Investors can learn something from that ultra-patient attitude. The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "
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  • Report this Comment On October 21, 2013, at 2:21 PM, DieselBoatMan wrote:

    Over the course of history, AT&T always showcased Bell Laboratories as their "genius factory", and although BL has a profound/well earned reputation, I always felt that the really smart people in AT&T were in the finance department. This transaction is just a small sample of their smarts.

    (Retired Bell Labs - former genius) Now just another slacker wishing he were better at finance.

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