We upgrade our recommendation on Liberty Interactive Corp. (LINTA - Analyst Report) to Outperform backed by our assessment that the TV home shopping business will flourish in the near future as the global economy is expected to gradually stabilize compared with massive fluctuations in the previous year. The company’s third quarter of 2011 financial results outperformed the Zacks Consensus Estimates.
Liberty Interactive’s QVC division has become the undisputed market leader in the $8 billion TV home-shopping business. Currently, QVC commands an estimated 69% market share, far ahead of its nearest rivals, HSN Inc. (HSNI - Snapshot Report) and ValueVision Media Inc. (VVTV - Snapshot Report).
Furthermore, Liberty Interactive also owns a 32% stake of HSN Inc. TV home-shopping business is characterized as having a very stable customer base, who are mostly women. QVC accounts for 11 million customers in the U.S., which is expected to grow in the long term.
Besides, the company is generating positive free cash flow. In the previous quarter, Liberty Interactive was able to reduce its bank debt by $160 million, which in turn, lowered its leverage ratio to 1.5x. Management is pursuing a systematic share buy-back program to increase its shareholders’ wealth.
eCommerce business of Liberty Interactive is witnessing significant growth year over year. During the first nine months of fiscal 2011, this segment’s revenue increased by a massive $158 million compared with the prior-year period. Each of the company’s e-commerce business sites witnessed sales increase. Adjusted operating income before depreciation and amortization increased by $18 million in the first three quarters of 2011 corresponding to the prior-year period.