Qurate Retail Inc. (QRTEA) A Bull Case Thesis – $10.28

We came across a bullish thesis on Qurate Retail Inc. (QRTEA) on ValueInvestorsClub by Mustang. We like VIC as our preferred site because the ideas there are generally posted by aspiring analysts who try to find hole in their own analysis. We find the ideas presented on the site well-researched and worthy of a serious look. Click here for the full article. Below we summarized the QRTEA bullish thesis:

Formerly known as Liberty Interactive Corporation, Qurate Retail Inc. is an American media conglomerate providing e-commerce services to customers across the globe. The company engages in the video and digital commerce via television networks and e-commerce sites, social media, cellular application, print catalogues, and in-store destinations.

Valuation

The analyst’s article highlights the impact of the special dividend announced by Qurate for their primary business known as QVC, which translates into an extremely high pro-forma free-cash-flow yield. In addition to a special cash dividend of $1.50 per share, there is also a $3.00 per share of $1.3 billion of 10-year, 8% preferred stock. Currently trading at $10.28 with market cap of $4.28 billion would be trading pro-forma post all adjustments around $5.78 and market cap of $2.4 billion. While the leverage through the preferred issue would rise from3.0x to 3.9x, the EV/EBITDA would remain unchanged at 5.2x. This would mean the common stock is available at 5.2x EV/EBITDA.

High Free-Cash-Flow Yield

After the other adjustments including interest costs, capital expenditures, and losses on investments (energy products with favourable tax liabilities), the net pro-forma preferred share income would be around $1 billion. Against the pro-forma market cap of $2.409 billion, this income is a 43% free-cash-flow yield. QVC has been registering a drop of ~3% CAGR in its EBITDA, hence there no chance of any significant increase in the tax liability either.

Interestingly, the company grew its business and revenues in the June, 2020 quarter. The analyst strongly believes QVC has a track record of generating repeat business due to its high customer retention rate. The resiliency of the business versus the drag in the stock price is an opportunity here. The stock is attractive at current levels even in case of an unlikely continuation of the ~3% erosion in the EBITDA.

Foot Note: The stock did touch $13.48 on 16 February, 2021 before levelling off.

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