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We upgraded our recommendation on Liberty Media Corp. (LMCA - Analyst Report) to Outperform based on strong financial results for the second quarter of 2013. Although total revenue was mostly in line with the Zacks Consensus Estimate, earnings per share significantly outpaced the same. Liberty Media currently has a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Liberty Media is steadily restructuring its business model in its aim to control several subscription-based companies. Strong performance in the said quarter was primarily driven by the contribution from the company’s newly acquired controlling stake of SIRIUS XM Radio Inc. (SIRI - Analyst Report). Management is pursuing a systematic share buyback program to enhance shareholders’ wealth. Moreover, the spin-off of the Starz segment as a separate entity helped Liberty Media to improve its financial position.

Recently, Liberty Media entered into the cable TV market after acquiring 27.3% stake of Charter Communications Inc. (CHTR - Analyst Report), the fourth largest pay-TV operator in the U.S. Liberty Media is striving to enable Charter Communications’ acquisition of a major cable TV operator in the U.S. Earlier this year, Charter Communications declared its plans to acquire Cablevision Systems Corp.’s (CVC - Analyst Report) western U.S. cable systems, Optimum West, for around $1.6 billion in cash. 

On Jun 25, 2012, the U.S. District Court in Manhattan awarded nearly $1 billion to Liberty Media as it found the French entertainment firm, Vivendi, guilty of not disclosing its true financial position to Liberty Media in 2001 in an equity swap deal. In 2001, Vivendi bought USA Network for over $10.3 billion.

As part of the deal, Vivendi gave Liberty Media 32 million treasury shares and an additional 5.2 million shares for its holding in a European cable joint venture with Vivendi. Vivendi later appealed against the ruling. However, in Jan 2013, the District Court in Manhattan once again gave the order in favor of Liberty Media and rejected Vivendi’s petition.

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