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Strategies & Market Trends : Value Investing
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To: E_K_S who wrote (73818)10/2/2023 10:44:43 PM
From: Sean Collett1 Recommendation

Recommended By
E_K_S

  Read Replies (2) of 78452
 
Oh Qurate...

I still think they are a value despite what Wall Street has grown to think about them.

$1B working capital
Positive net working capital

They have the FCF and have been FCF positive for years despite the debt.

Debt is the elephant here and while it is a concern it's not like it just grew overnight though. They had $8B in debt in 2014 (now $6.5B) and have continued to remain in operation and generate positive FCF. This is not something you see with a company nearing bankruptcy.

A good chunk of their debt is tied to debentures where they either get indemnification payments or tax benefits for retiring early; they're able to buy this debt back at a discount. The 1.75% debentures will be off their books in the next quarter and they've been making progress on the 3.75% and 4% ones. They've been buying back the 4.85% senior notes and on Sept 2025 they can start going after the preferred shares if they choose. Many look at dividends or share buybacks (which Qurate pays in $QRTEP) as the main ways a company can increase shareholder yield but debt buybacks with FCF is a third way and something overlooked.

Aside from the debt I think the big jump is the declining revenues but here I think investors are really underestimating the impact the Rocky Mountain fire had. The Rocky Mountain fire took out the second largest QVC/HSN warehouse and they had 1,000+ semi trucks backed up for months while they worked through this. They discounted a ton of product to move old inventory and because they lost capacity to ship they lost customers because they couldn't fulfill.

Many retailers today are just now going to be discounting their products to clear inventory - Qurate had to do this already.

Zulily was a big drag on their financials, but leadership moved quick and sold them. This will see a large decrease in Qurate revenues as Zulily did around $1B, but the gains in OIBDA will make up for it.

Leadership has also been expanding QVC/HSN into streaming which is where their customers are.

My bull case here is the Rocky Mountain situation is resolved and inventory with it + streaming pivot will help stabilize the customer declines and with that the revenue. Zulily being gone will create a further improvement and as will the continued buyback of debt. This should all translate into their financials in coming quarters despite what Wall Street thinks of them currently.

I challenge the bankruptcy, or immediate bankruptcy view that is, as a company that is nearing bankruptcy is being cut off from their creditors or suppliers as they can't be paid. Qurate continues to generate FCF and is actively buying their debt back (some at a discount).

-Sean
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