Qurate Retail saw its business decimated by the pandemic-related supply chain issues. The company’s share price cratered.

But the investing public has not yet noticed the company is on its way to a recovery.

With a locked-in return, the preferred shares offer a compelling value to patient investors.

Here’s how…

Qurate Retail (QRTEA) operates the Home Shopping Network (HSN) as well as QVC. Before the pandemic, it was a very profitable company. 2019 net income was $867 million, or $1.86 per share. When the pandemic hit, supply chain issues and an untimely warehouse fire decimated the company’s profitability.

Here are the profit numbers for 2020 through 2022:

  • 2020: $2.99 per share
  • 2021: $1.73 per share
  • 2022: $0.15 per share

Qurate posted quarterly losses from the 2022 third quarter through the 2023 second quarter. As a result, its share price dropped from over $12.00 in mid-2021 to well less than $1.00 currently.

The Qurate 8.0% Cumulative Preferred (QRTEP) shares also tumbled sharply. QRTEP traded for close to the $100 par value before the pandemic. Recently, the shares traded for less than $20 before recovering into the mid-$30s.

QRTEP offers a unique opportunity. The shares have a mandatory redemption at par in March 2021. So, let’s do a little math. The QRTEP dividends are $8.00 per share per year. At $35 per share, the preferred shares yield 23%. The dividends have seven years to run, so a total of $56 per share in dividends will be paid until the beginning of 2031. At redemption, shareholders will receive $100 per share.

If you buy QRTEP now and hold until the shares are redeemed, you will receive a total of $156 per share in cash. That is a pretty good, almost guaranteed return on a $35 investment.

It’s the “almost” part that becomes the challenge. The market is pricing the QRTEA shares like there is a high probability that the company will go bankrupt. The analysis for QRTEP is to determine if Qurate Retail can stay in business for another seven-plus years.

In 2022, the Qurate management team launched Project Athens with the goal of returning the company to solid profitability. Over the last three quarters, the bottom-line results have slowly improved. I analyze each quarter’s results for my Dividend Hunter subscribers and let them know what I find out. Currently, the trend line is good, which is a positive for an investment in QRTEP.

— Tim Plaehn

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Source: Investors Alley