More Value Awaits ValueVision in Comcast's Hands

Includes: EVLV, HSNI
by: TMT Analyst

ValueVision (VVTV) shares are likely to benefit from an improvement in both sales and EBITDA, with Adj. EBITDA likely turning positive, when they report 3Q10 results November 18th. Plus Comcast (NASDAQ:CMCSA), after the NBC deal is consummated, is likely to take hold of ValueVision and grow it into a very competitive television shopping network.

The distant no. 3 home shopping television network once saw its shares trade as high as $57 back in the heydays of the late 1990s but as low as 20 cents during the recent financial crisis. See a previous write-up on ValueVision here.

However, the company appears to be on track for a solid rebound. So far this year, they have hired a new CFO, a VP of Merchandising, a VP of Merchandising Analysts (whatever that is), a VP of Quality Assurance, and a new President overseeing Merchandising, Planning, Programming, Broadcast Operations, and On-Air Talent. All of these appointees have decades of experiencing in retailing and media and provides a deep bench from which the company can continue to pursue its turnaround strategy.

Several insiders have actually bought shares, which to us is a good sign.

We are estimating that the company can grow sales 6.2% y/y to $127 million in 3Q10 and likely see an Adj. EBITDA swing of approximately $7 million y/y to $1.3 million for a 1% margin.

Click images to enlarge

ValueVision's two competitors grew their domestic sales an average of 6.2% in 3Q and we are assuming that ValueVision can match that growth rate. In 2Q10, ValueVision bested its competition by 2.6%, thus our estimate could likely prove conservative.

Layer on top of that a potential acquisition. One of the two competitors has expressed interest in ValueVision in the past.

But notably, and one of the best reasons to own the stock, is the potential for what ValueVision can become in the hands of Comcast. The cable company is set to get NBC's stake in ValueVision when the merger is completed. It is likely to then take hold of the network, invest in it, and grow it competitively. Watch for that catalyst.

Only one firm, Dougherty, has a rating on the shares, a Buy with a $5 price target, suggesting a 60% upside is achievable. Our back of the envelope valuations show that the shares can jump to over $7 by year-end 2011, using modest assumptions for revenue growth through 2012 and a 5% Adj. EBITDA margin, which is half the margins of competitor HSN (NASDAQ:HSNI). A 7x multiple we think is reasonable for this business and compares to its competitors. At a 7.5% Adj. EBITDA margin, which is certainly doable, the shares are worth north of $10.

About this article:

Tagged: , , , Catalog & Mail Order Houses
Problem with this article? Please tell us. Disagree with this article? .