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Analyst Blog

We downgrade our recommendation on Liberty Media Corp. (LMCA - Analyst Report) to Underperform primarily based on its current valuation. Liberty Media currently has a Zacks Rank #5 (Strong Sell). 

Why the Downgrade?

The stock price of Liberty Media has soared nearly 26% in the last year. At present, Liberty Media is trading at extremely high multiples compared to both the S&P 500 and the industry average with respect to several valuation metrics. We believe that the stock is overvalued at this stage and the multiples must converge toward its peer average.  

Nevertheless, the company reported excellent financial results for the first quarter of 2013, easily beating the Zacks Consensus Estimate. Liberty Mediais gradually restructuring its business model, targeting to control the subscription-based companies.

Currently, Liberty Media controls a 50.2% stake of SIRIUS XM Radio Inc. (SIRI - Analyst Report), a 27.3% stake of Charter Communications Inc. (CHTR) and a 27% stake of Live Nation Entertainment Inc. (LYV - Snapshot Report).

Moreover, management is pursuing a systematic share buy-back program to boost shareholders’ wealth. The spin-off of the Starz segment as a separate entity has helped the company to improve its financial position.  

On the other hand, Liberty Media’s businesses are susceptible to rapid technological changes. Large cable TV operators are increasingly deploying digital TV networks, which are rapidly gaining huge market traction. This may adversely impact the channel positioning of Liberty Media’s networks.

Increasing deployment of personal video recorders, video-on-demand technology and IPTV network are systematically changing the distribution and viewing habits of the common people. Further, the multi-channel video market in the U.S. is almost saturated.

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