Growth for Lamar Advertising

Lamar Advertising Company (LAMR) has grown its localized billboard advertising business through a combination of organic growth and strategic acquisitions. The company is benefiting from the rebound in pricing for local advertising and a stronger billboard business. The Buy rating is maintained.

The outdoor advertising industry is growing, as consumers spend most of their time away from home. Fragmentation across other advertising media and technology advancements in the outdoor segment are also aiding the move to outdoor advertising. Interestingly, beneficial owner SPO Advisory Corp. has acquired an additional 1.66 million shares over the last three months, bringing its total holding to 12.3 million shares of the company.

However, increased capital expenditures in the effort to digitize signs, higher expenses related to the recently acquired outdoor advertising assets, and higher interest expense from the increased debt level are reducing free cash flow.

Lamar's stock has traded in a wide Price-to-Cash Flow (P/CF) multiple range of 9 to 22 over the last five years. With the economy weakening, Lamar's stock has traded down to the low-end of the historical P/CF valuation range. The target price of $56.50 is a mid-range 15 times 12 month trailing cash flow.

Surprise BTRX Buyout Logical

While the news of the acquisition of Barrier Therapeutics, Inc. (BTRX) by Stiefel Laboratories, Inc. came as a major surprise, the deal makes sense for both the parties. We expect the deal to close in the third quarter of 2008.

Stiefel specializes in the field of dermatology and should be able to extract more value from Barrier's product portfolio. From Barrier's perspective, the deal is a boon as the company was struggling to cut costs and find development partners for its pipeline candidates.

Barrier lost investor credibility in 2005 when its lead pipeline candidate, Hyphanox, failed to achieve the primary endpoints in a phase III trial. Since then, Barrier received approval for and launched two new products. However, revenues from these products will not be sufficient to help the company achieve profitability in the near future.

Moreover, the company's cash position is a matter of concern. Although Barrier announced certain cost-cutting and strategic initiatives to help reduce cash burn, we believe the company will have to resort to tapping the financial markets as early as next year to fund operations in the absence of any partnership agreements for its pipeline candidates.

We believe that Hyphanox represents the main potential at Barrier and is a major reason for Stiefel's acquisition offer.