Axiom's Anthony: Time To Buy QVC, It's A 'Quality Asset' With Cheap Valuation

In a report published Tuesday, Axiom’s Victor Anthony initiated coverage on shares of Liberty Interactive Group QVCA with a Buy rating and a $33 price target.

The analyst thinks Liberty Interactive is quality asset “due to international diversification, a high margin profile, a high free cash flow yield, and a management team backed by John Malone, who has a consistent history of driving shareholder value.” In addition, the company “dominates the global video commerce and multi-channel retail industry.” And, given its 38 percent stake in HSN, Inc. HSNI, the number two domestic player, the company is, in Axiom’s view, a proxy for the industry.

Despite Liberty’s strong market position, its stock currently trades at a multiple below its peers. Going forward, Anthony expects multiples to expand on the back of:

• Continued sturdy operating performance, supported by mobile commerce (which accounts for 1/5 of global sales and half of e-commerce sales, and continues to grow rapidly) and product exclusivity
• International expansion to countries like France, Spain and Brazil within the next two years. In fact, the company aims at launching a new market every 18 to 24 months. The report explains that country launches will drive incremental profit, following several years of capital and operating expenses. “There is a meaningful internal initiative underway that would entail developing a more global approach to operating the businesses across all markets,” the analysts add. They believe the aim is “to leverage the various assets of QVC globally, leaning on best practices and vendor relationships to create merchandising advantages.” They assume that, with this global approach, Liberty can achieve cost synergies, which will lead, in turn, to higher incremental margins.
• Share repurchases driving growth in EPS and free cash flow per share.