Liberty Global's Valuation High

Liberty Global, Inc. (LBTYA) is aggressively buying back shares, a move that we think will provide downside cushion to EPS and elevate the stock price for future acquisitions. In the coming years, we believe Liberty Global's earnings will continue to benefit from the 'triple-play' of video, broadband and telephone services as it signs up more customers in Europe, Japan, and Latin America.

However, in our view, Liberty's top-line and EBITDA growth will begin to decelerate in 2007, weighed down by the maturing western European operations. These account for roughly 37% of the company's total revenue and 47% of its operating cash flow.

Liberty Global's valuation is steep. Moreover, we do not think the stock's steep valuation incorporates decelerating EBITDA, limiting upside in our target price. The stock is now trading at an EV/EBITDA multiple of 7.5x our 2007 EBITDA estimate, in-line with its peers. However, the company is highly leveraged with gross debt to EBITDA at 4.4x, and will likely remain highly leveraged as it continues to acquire assets and spend to upgrade some of its systems.

The company's goal is to keep its leverage below 5x. Accordingly its heavy interest expense and capital expenditure requirements are depressing cash flow. Price/OCF for 2007E is 25.2x. Moreover, the company is continuously buying and selling operations throughout Europe.

Japan is making the job of deciphering the accounting and the true future cash flow generating abilities of Liberty Global even harder. We think investors should assign a discount to Liberty's peers to reflect this complexity. We rate the stock as Hold with a price target of $40.

Sumit Singh contributed to this report.

Pozen Answering FDA Questions

Pozen, Inc. (POZN) announced on February 25, 2008 the company has submitted the findings from a short-term genotoxic study as part of the complete response filing to the FDA on Treximet (formerly Trexima). Results of the study indication no chromosomal aberration was induced by Treximet after seven days of dosing.

These results should be sufficient to answer the questions raised in the August 2007 Approvable letter. The FDA has accepted the CRL filing on Treximet and pledged a PDUFA action date of April 15, 2008. We think it is possible the FDA acts favorably before that time, and we see GlaxoSmithKline Plc (GSK) being able to launch the drug in the second quarter 2008. This should help drive Pozen shares up toward our $18 target.

Pozen and Glaxo completed the short-term genotox study and submitted the data as part of its response filing on January 15, 2008. This data indicates an all clear with respect to chromosomal aberrations as expected. The Treximet PDUFA had been previously set for April 15, 2008 based on the CRL filing in October 2007.

Will that date hold up or will the FDA require more time? That's the big question near-term. It is our belief that the FDA will rule favorably in April. Approval and launch of Treximet will result in a $20 million milestone from Glaxo in the second quarter of 2008.

If the FDA requires more time to decided, we would have to adjust our model to include these revenues in the third quarter (July) 2008. Either way, milestone and royalties on Treximet have the potential to make Pozen profitable in 2009. We rate the shares Buy with an $18 price target. We arrive at this target applying an industry average 20x our 2011 EPS of $2.40 (fully-taxed) and then discounting back to present at 25%.