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Liberty Media Still Neutral

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Liberty Media Corp. reported strong financial results for the second quarter of 2012 outpacing the Zacks Consensus Estimates. We believe the company’s recent decision to spin-off Starz LLC segment will enable to it to raise its stake in SIRIUS XM Radio Inc. (SIRI - Free Report) , Barnes & Noble Inc. , and Live Nation Entertainment Inc. (LYV - Free Report) . We believe SIRIUS XM will be the key player in the company’s growth story based on rising auto industry sales.Liberty Media is currently trying hard to take full control of SIRIUS XM.

Liberty Media has filed a new application to the U.S. Federal Communications Commission, in which the company stated its intention to acquire more than 50% of SIRIUS XM, so that it can take full control of the Board of SIRIUS XM. Liberty Media withdrew its previous application with FCC to de facto control SIRIUS XM. Instead, the company is now willing to get a full control. Liberty Media at present has 49.5% stake in SIRIUS XM’s total outstanding shares. With nearly 23 million subscribers in its kitty, SIRIUS XM, the largest satellite radio service provider, is expected to generate huge financial synergies to Liberty Media over the long haul.

In November 2011, the company invested in Barnes & Noble. Management is pursuing a systematic share buy-back program to boost its shareholders’ wealth. Meanwhile, the stock price has soared more than 77% in the last year and is currently trading at significant high multiples compared with S&P 500 and its peers with respect to several valuation metrics. We believe Liberty Media is currently fairly valued and maintain our Neutral recommendation.  

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