Liberty Media Initiated as Neutral - Analyst Blog
We initiate coverage on Liberty Media Corp. ( LMCA ) with a Neutral recommendation. The company's third quarter of 2011 financial results significantly outperformed the Zacks Consensus Estimates. In November 2011, in a major strategic move, Liberty Media abandoned its plan to buy a controlling stake in Barnes & Noble, but instead intended to invest in the company.
We believe this new deal will boost Liberty Media in four ways: (1) the new deal will save a huge amount of cash (approximately $1.02 billion decided earlier for 70% stake) for the company, especially under a volatile macro-economic scenario for diversification in a completely different business segment (2) will strengthen the company's top line backed by big dividend (3) the company will get two seats in Barnes & Noble's board of directors since the convertible preferred stocks will effecttively give 16.6% controlling stake to Liberty Media (4) the company may increase its stake in the future if the e-book reader business flourishes in the long run.
Further, management is pursuing a systematic share buy-back program in order to raise its shareholders' wealth. Meanwhile, the stock price soared nearly 40% last year and its currently trading at significant high multiples compared with S&P 500 and its peers with respect to several valuation metrics. We believe Liberty Media is fairly valued at present and provide very limited scope for above market gain.
Liberty Media is trying hard to renew its affiliate deal with Time Warner Cable Inc. ( TWC ) and a licensing deal with an online video provider. Besides, renewing of its Time Warner Cable deal will facilitate the company to solidify its Starz subscriber growth.