Valuevision Media: Our Top Small Cap Media Pick.

ValueVision Media (VVTV) is set to report earnings on May 11, 2011. Research firm Piper Jaffray is calling for revenues of $146.7 million, Adjusted EBITDA of ($0.962), and GAAP EPS of ($0.73). We think those estimates are easily beatable and the shares are likely to rally post the earnings.

Friday’s favorable decision from Liberty Interactive regarding the bondholder lawsuit should be viewed as a catalyst for the TV Shopping industry, and VVTV in particular, because it could mean that QVC and HSN would be cleared to merge in the future. Comcast in our view, would not sit idle and let QVC and HSN become overbearing as a combined competitor, and could invest in VVTV to make it more competitive. We think that would ultimately lead to a full acquisition of VVTV by Comcast.

In addition, Comcast’s declaration last week that it would cross promote its assets is also favorable for VVTV.

We have pushed the acquisition thesis on VVTV before, seen here, and thinks it makes sense for Comcast, but also for a company like Amazon.com, who could stand to both increase sales and margins if it had a TV distribution outlet. The margins on a multichannel shopping purchase is higher than that of a pure online shopping purchase or that of a pure TV shopping purchase. A TV channel would allow Amazon.com in our view to ultimately get to the double digit operating margin goal.

As a standalone business we are calculating a fair value for VVTV shares of around $8 based on a 8.5x multiple to fiscal 2013 consensus EBITDA of $50 million.

And as for the Wall Street Journal article about the insider share sales, which we view as fair to bring up, we note that the article did not mention that the CEO had purchased 1 million shares in the open market in 2009. From a pure corporate governance perspective we do not like one-time insider shares sales because of the signaling hypothesis. But be that it may, the business is fundamentally strong and has great momentum, so we are willing to overlook that at this time, and look to the upside potential from owning the shares.