Not a lot has been going right lately for IAC/Interactive (IACI), Barry Diller’s mishmash of Internet brands and retailing businesses. The company has been trying to turn around its trouble HSN television shopping channel; its Lending Tree business has suffered with the subprime lending debacle; and its Ticketmaster unit was hit with the loss of the ticketing contract for event promoter LiveNation (NYSE:LYV).
As Merrill Lynch’s Justin Post points out in a research note Tuesday, the stock is now trading at a valuation level comparable to newspaper companies - and we all know how popular they are.
Post thinks the market’s pessimism has gotten out of hand. He raised his rating on the stock Tuesday to Buy from Hold, calculated a sum-of-the-parts valuation for the stock of $35, about 25% above Monday’s closing level.
“While 2Q was disappointing and the company has a history of execution challenges, we see easier comps ahead in 2008 and anticipate double-digit growth, leading to multiple expansion,” Post wrote Tuesday morning.
Post notes that the HSN business is “already showing signs of re-acceleration,” and adds that “renewed corporate management confidence could be a sign of an inflection point.”
He says the loss of the LiveNation contract has been discounted in the stock, and also that the Lending Tree unit is being valued at just $1-$2 a share. The shares, he says, should no longer trade with changes in the lending market.
He also notes that the company has $1 billion in net cash, and $2 billion in gross cash, which could be used to buy back shares. He also notes that the company’s stake in Shop Channel Japan and equity received in its sale of HSN Europe are worth about $700 million. Not least, he notes that the contract for search services between Google (NASDAQ:GOOG) and the company’s Ask.com site is coming up for renewal next year, and should result in more favorable terms for Ask.
He also notes that if the HSN business doesn’t turnaround, the business could be sold.
IACI 1-yr chart: