UBS Global Research analysts Eric J. Sheridan, Timothy E. Chiodo and Vishal J. Patel rate Liberty Interactive (Interactive group) (NASDAQ:LINTA) as a Buy as they see a compelling mix of growth, expansion, and catalysts.
Bullish on QVC domestic growth, international expansion, & LDCA spin
We are initiating coverage with a Buy Rating and a $35 PT. Liberty Interactive (Interactive group) (NASDAQ:LINTA) is made up of the core QVC retail operation, a set of eCommerce businesses, & a 38% stake in HSNi. We believe that QVC provides investors with a compelling mix of stable domestic growth, variable International commerce expansion, & the coming spin of its eCommerce businesses as a catalyst. Based on our analysis, we see a long runway for revenue growth & margin expansion within the QVC business (especially overseas). We also see the potential for levered equity returns to shareholders over the coming years.
Some of the specific investment themes addressed are as follows: a) domestic market leadership; b) International opportunities (both within existing markets and potential additions); c) the prospect of additional shareholder returns (management has demonstrated a track record of excellent capital allocation, utilizing cash flow to conduct strategic M&A & consistently repurchase shares); & d) initiatives in mobile & social (responsive design enhancement, to Gather social commerce platform, etc.).
Estimate above street on revenues & margins (’13-’16E CAGR)
Both our 2013-2016 revenue & EBITDA estimates are above current Street estimates (5.7% ’13-’16E CAGR vs. 4.4% Street for revenue; 7.1% ’13-’16E CAGR vs. 4.2% Street for EBITDA). We are bullish on the revenue prospects for QVC within the International segment, as well as for the eCommerce businesses given the investments we expect post the spin. Our EBITDA forecast reflects incremental margin expansion on a combination of continued investment (largely technology) offset by benefits from initiatives in digital (eCommerce, mobile, social), fulfillment, & personalization.
Liberty Interactive’s valuation
Our $35 price target for Liberty Interactive (Interactive group) (NASDAQ:LINTA) is based on our weighted average approach (EV/Sales, EV/EBITDA, EV/FCF) skewed most heavily to EV/EBITDA given the relative maturity of the business vs. our existing coverage universe. Additionally, our PT is supported by our SOTP valuation (QVC, eCommerce businesses, HSNi stake, net debt, & corporate costs).