Should You Buy It? Liberty Entertainment's a Yes
It's been a volatile first month of trading for Liberty Entertainment (LMDIA) , since it was carved out of Liberty Capital (LCAPA) March 4.
Liberty Entertainment is one of three
tracking stocks
making up
Liberty Media
and houses the pay cable networks Starz and Encore. ( A tracking stock is a security that tracks a business or group of assets.) Liberty Entertainment also holds a 41% stake in satellite television operator
DirecTV
(DTV)
. Liberty Entertainment shares debuted March 4 at $26 and have since traded in a range between $19.65 and $27.07, closing Wednesday at $23.12.
At current levels, the company's 470.4-million share stake in DirecTV alone is worth $12.2 billion ($23.67 a share), or nearly $300 million more than the current market capitalization of Liberty Entertainment.
My prime role here at TheStreet.com is to identify value stocks as part of the service I manage, TheStreet.com Value Investor. (
for a free trial to The Value Investor. With that in mind, I'm here to answer readers' questions: Should you buy it? Is Liberty Entertainment attractive to purchase at current levels, or is this discount to net asset value too good to be true?
In addition to the aforementioned assets, Liberty Entertainment also holds several regional sports networks and other media holdings, including a 50% stake in the Game Show Network.
But with DirecTV accounting for the majority of Liberty Entertainment's market value, any analysis of the stock should include the near-term prospects of the satellite cable operator.
DirecTV shares have had a good year, gaining more than 12%, to Wednesday's closing price of $26. The company has been cutting internal costs and gaining market share -- both through price competition and offering more high-definition channels than traditional cable operators.
As a result, DirecTV projects to end the year with 17.5 million subscribers, which would make it the second-largest overall cable operator, behind
Comcast
(CMCSA) - Get Report
.
With only $551 million of debt on the balance sheet, Liberty Entertainment has the available leverage to either acquire more DirecTV shares or even buy back its own stock, as long as it trades at such a discount to its net asset value.
So yes, I do believe that Liberty Entertainment is attractive to purchase at current levels. This is a case in which the sum of the company's parts is clearly worth more than the whole, and the stock could trade up toward the high-$20s over the coming quarters.
David Peltier manages TheStreet.com Value Investor and writes regularly about value stocks, such as Macy's (M) - Get Report, Baker Hughes (BHI) and Toll Brothers (TOL) - Get Report, for TheStreet.com
.
David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;
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