We downgrade our recommendation on
Liberty Global plc.
) to Underperform primarily based on its current valuation. The
company posted mixed financial results for the first quarter of
2013. While the total revenue surpassed the Zacks Consensus
Estimate, net income fell below the same.
Why the Downgrade?
The stock price of Liberty Global has soared more than 55% in
the last year and is currently trading at extremely high
multiples compared to both the S&P 500 and the industry
average with respect to several valuation metrics. We believe
that the stock is overvalued at this stage and the multiples must
converge toward its peer average.
Additionally, the pay-TV market of Germany is expected to
become intensely competitive in the near future.
Vodafone group plc.
), a global telecom giant, is on the verge of acquiring Kabel
Deutschland, the largest pay-TV operator in Germany. Notably,
Germany is the major growth region for Liberty Global. Moreover,
business integration risk persists as the company has recently
acquired several companies either partially or fully.
Liberty Global continues to lose customers for its basic video
offerings. In the fourth quarter of 2012, it lost a net total of
92,000 video customers. This was mainly due to a huge loss of
video subscribers in the Romanian operations. In the reported
quarter, the company added 373,000 organic revenue generating
units (RGU), down 16.2% year over year.
Other Stocks to Consider
Liberty Global currently has a Zacks Rank #5 (Strong Sell).
While we prefer to avoid Liberty Global until we see reasonable
valuation metrics, other Cable TV stocks worth a look are
Time Warner Cable Inc.
). Both hold a Zacks Rank #2 (Buy).
COMCAST CORP A (CMCSA): Free Stock Analysis
LIBERTY GLBL-A (LBTYA): Free Stock Analysis
TIME WARNER CAB (TWC): Free Stock Analysis
VODAFONE GP PLC (VOD): Free Stock Analysis
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