NEW YORK (TheStreet) -- Shares of Windstream Holdings (WIN) continued to soar a day after news the Internal Revenue Service granted the company's request to spin off part of its telecommunications assets into a publicly traded real estate investment trust, or REIT. This move will allow Windstream to avoid paying federal income tax on what had been taxable earnings.
Windstream shares, at around $11, are now up nearly 43% for the year to date.
REITs have grown in popularity over the years as a way to shelter income from taxes. REITs do not pay income tax as long as they distribute at least 90% of their taxable earnings to shareholders in the form of dividends. In this era of tax inversion, this latest move could become a watershed event for both the cable and telecommunications sectors.
Wall Street applauded the move, sending shares of other telecom stocks up including CenturyLink (CTL), AT&T (T) and Verizon Communications (VZ). This IRS ruling opens up the possibility for large corporations in these sectors to avoid paying taxes rather than more their assets offshore by buying a foreign company.
According to Oppenheimer analysts Timothy Horan and Jonathan Michaels, "We have seen the REIT Data centers and Towers trade 30%-40% higher than non-REITs by avoiding taxes... For our sector, we believe this means that every network stock we cover is roughly 20% undervalued at this point, as they should be able to largely avoid paying taxes going forward."