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Liberty Global, Inc. (LBTYA)

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We downgrade our recommendation on Liberty Global, Inc. (LBTYA) to Underperform based on two factors (1) an extremely high-level of current valuation of the company, and (2) precipitous macro-economic fluctuations in the European region, which is the core business area of the company.

Liberty Global reported mixed financial results for the first quarter of 2012. Though revenue beats the Zacks Consensus Estimate, net income fell below it. Moreover, business integration risks persist as Liberty Global has recently acquired several related businesses.

With respect to our fiscal 2013 earnings estimate, the stock is trading at 22.4x, a huge premium to both the S&P 500 average and the industry average. We believe the stock is currently overpriced and thus downgrade our rating to Underperform with a target price of $42, based on 35.6x our fiscal 2012 earnings estimate.

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