John Malone's Best-Kept Secret by Neil A. Martin
Summary: While the reported earnings of cable giant Liberty Global (LBTYA) may look bad (-$0.35/share in Q1 and an estimated -$0.84 on the year), its Ebitda [earnings before interest, taxes, depreciation and amortization] -- analysts' preferred measure of cable profitability -- have grown by 16% in each of the past two years amid cash-flow growth, market share increases, and share buybacks. Its negative EPS are reflective of high depreciation costs related to the company's acquisitions. At $42, shares are up almost 100% over the past year, and trade at 8.4x 2008e Ebitda -- about a point higher than the cable industry average. But Lehman's Vijay Jayant says they're worth it, due to the company's accelerated earnings growth. "[Liberty] is at an earlier stage in its development cycle, and has a commanding position in cable markets overseas that are not as mature or consolidated, and not nearly as competitive as those dominated by Comcast (CMCSA) in the U.S.," says M&R Capital's John Maloney. Wall Street expects Liberty Global to generate $3.4B and $3.8B in Ebitda over the next two years, cash that will likely be used to snap up even more of its own shares, of which the company has repurchased 20% since the beginning of 2006. It is rumored to be mulling a bid for British cable company Virgin Media (VMED), which could be used to bolster other European properties and offset future tax liabilities. But Barron's says at current prices, using its cash to buy back its shares -- which could hit $60 over the next 18 months -- is still its best option.