Shares of Liberty Global plc - Class A Ordinary Shares LBTYA have lost 8 percent since the start of 2018, but investors have good reasons to drop their "notoriously cautious stance" on the stock, according to Bernstein.
Bernstein's Dhananjay Mirchandani upgraded Liberty Global's stock rating from Market-Perform to Outperform with a price target lifted from $35.40 to $40.50.
A bearish and cautious stance on Liberty Global's stock was based on the operational prospects of the company's operations in Europe, Mirchandani said in the Thursday note.
A bullish case can now be made for four compelling reasons, the analyst said:
- Concerns over Liberty Global's Project Lightning initiative in the United Kingdom are likely "overdone," the analyst said. Looking forward, unique customer average revenue per user is likely to grow modestly, which could offset any EBITDA pressure from subscriber growth.
- The U.S. dollar has dipped versus the U.K. sterling and the euro, which is a positive for companies like Liberty Media, Mirchandani said. A revised foreign exchange assumption for 2019 generates an EBITDA estimate for the company that is 10 percent above the Street's current estimates.
- Liberty Media's stock is trading at a "modest" EV/OpCF premium to sector averages in Europe, the analyst said. A higher premium may be justified based on expectations for a 23-percent OpCF compounded annual growth rate through 2022 versus just 4 percent for the overall sector.
- Liberty Media's stock doesn't factor in any M&A upside from a Vodafone deal. The likelihood of a deal for Germany and Eastern Europe has an 80-percent probability of being announced within six to nine months, and a 60-percent chance of being finalized by the close of 2019, according to Bernstein.
Shares of Liberty Global were trading higher by 0.3 percent midday Thursday.
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