Wunderlich: QVC Group 'Best House' In Tough Neighborhood

Wunderlich believes that in the "tough consumer neighborhood," QVC Group (parent company Liberty Interactive Corp QVCA) is the "best house." The comments come ahead of the company releasing its first-quarter results May 9.

Expectations For Q1

The brokerage pointed out a few key points ahead of the print. Wunderlich expects a 21.9 percent gain on top line, coming in at $2.362 billion off the zulily acquisition. However, the results are expected to be "dampened by overseas currency translations at lower FX rates, with an accompanying 6.5 percent adjusted OIBDA advance to $427 million," equating to an adjusted EPS $0.28.

Furthermore, QVC sales should be up 3.0 percent to $1.995 billion, and adjusted OIBDA up 3.0 percent to $419 million. Analyst Matthew Harrigan stated, "We have QVC U.S. sales up 3.5 percent to $1,388 million with adj. OIBDA up 4.4 percent to $320 million. Within the quarter, we expect newly acquired growth vehicle zulily to contribute $367 million in sales and $15 million in EBITDA, representing a margin of 4.1 percent."

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The brokerage expects domestic margin to grow 21 basis points from 22.8 percent last year to 23.0 percent, and OIBDA margin across all of QVC to come in flat at 21.0 percent versus the year-ago period, "largely off a small albatross from QVC France." Global gross margin is estimated to also come in flat at 37.0 percent.

Looking at the global sales, the brokerage said that QVC International sales should come in up 1.8 percent at $607 million, with U.K. GBP sales growing 6.4 percent and Japan growing 3.1 percent. As far as the eurozone, sales are likely to be down 0.2 percent.

Wunderlinch concluded that although the bad news from the retail sector flow might "cap immediate gains," the stock has the potential advantage of its business model.

"Despite the tepid global consumer cited by QVC CEO Mike George, mobile and social media influence favor QVC – and we attach credence to his conviction that 'Q' sales can outperform general merchandising indices by 'several' hundred basis points." The brokerage retained the price target of $38.0 and Buy rating.

At time of writing, Liberty Interactive was up 0.54 percent at $25.97.