We reiterate our long-term Neutral recommendation on Liberty Media Corp. (LMCA) following its mixed third-quarter 2012 results. The stock price soared neraly 54% 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 fairly valued.
The company’s decision to spin-off Starz LLC segment will enable it to raise its stake in SIRIUS XM Radio Inc. (SIRI), Barnes & Noble Inc. (BKS), and Live Nation Entertainment Inc. (LYV). We believe SIRIUS XM Radio will be the key player in the company’s growth story based on growing auto industry sales. Liberty Media is targeting full control of SIRIUS XM Radio. Moreover, management is pursuing a systematic share buy-back program to boost shareholders’ wealth. In November 2011, the company invested in Barnes & Noble, which we believe will benefit Liberty Media particularly under a volatile economic situation.
Liberty Media has decided to spin-off its Starz Entertainment segment as a separate entity by the end of 2012 or in early 2013. According to management, this move will unlock the latter’s value by optimizing its capital structure and enabling Starz to find several alternative ways and partnerships for both content creation and distribution. At the end of the third quarter, total subscribers base of Starz increased 9% to 20.8 million while its sister TV channel Encore had 34.3 million subscribers, up 5% year over year. The spin-off is envisioned to provide a cash dividend of $1.8 billion to Liberty Media.