On Mar 30, 2015, Zacks Investment Research upgraded Liberty Global plc LBTYA by a notch to a Zacks Rank #3 (Hold).
Liberty Global reported dismal fourth-quarter 2014 financial results. The company posted loss in the reported quarter while the Zacks Consensus Estimate projected a net gain. The top line also lagged the Zacks Consensus Estimate. The company is gradually establishing a strong foothold in the European cable multi service operator (MSO) market.
We believe that the long-term fundamentals of the company are quite compelling, primarily owing to strong demand for its digital cable-TV services, the acquisition of TV content producer All3Media, enhanced broadband and triple-play bundled offerings, strong cash flow and the growing popularity of Horizon TV services. However, stiff competition, saturated demand in European markets, high integration risks and mounting programming expenses may act as headwinds.
In the coming years, we expect Liberty Global to benefit from a ‘triple play’ of video, broadband, and telephone, as it signs up more “bundled” customers in Europe and Latin America. Liberty Global continues to offer download speeds in between 100 and 150 Mbps across most of its markets. Moreover, the company plans to enhance download speed by deploying the DOCSIS 3.1 technology. Additionally, in 2014, the board of directors of Liberty Global authorized a $4.5 billion share buy-back program for a period of two years.
In Nov 2014, Liberty Global acquired full control of Ziggo N.V., the largest cable MSO in the Netherlands. In order to complete the takeover, the company sold its premium pay-TV channel – Film1. Furthermore, Liberty Global provided the assurance that it will not prevent online video streaming service providers such as Netflix Inc. from accessing its web (Internet) network either contractually or technically for a period of eight years. Meanwhile, Ziggo competes directly with Royal KPN N.V. and Vodafone Group Plc in the Netherlands.
On the flip side, the company is predominantly operating in Europe, which at present is economically the most vulnerable region. Ongoing debt crisis in several European countries may significantly affect the future prospects of Liberty Global. The company is gradually concentrating on western Europe and some Latin American countries. Liberty Global exited the fourth quarter of 2014 with nearly $44.6 billion of debt. Regular share repurchases coupled with acquisition plans will not only undermine the company’s cash flow but also expand its leverage position.
Stocks to Consider
Better-ranked stocks in the sector are Chunghwa Telecom Co., Ltd. CHT, Vonage Holdings Corporation VG and The Walt Disney Company DIS. Chunghwa Telecom and Vonage Holdings sport a Zacks Rank #1 (Strong Buy), while The Walt Disney holds a Zacks Rank #2 (Buy).
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