Barrington Sees Elements of Good News and Bad News for Sirius

Barrington Research issued a report on Sirius XM Radio (SIRI) Monday that highlights the recent Liberty (LINTA) deal, as well as the upcoming report. The firm, in light of what has transpired, sees down-side as lower than before, but in light of dilution, rates the company as market perform.

REPORT EXCERPTS:

Downside Risk More Muted, but Upside Diluted; Reducing Rating
SIRI plans to release Q4/08 and full-year 2008 earnings results on March 17, 2009, with a conference call to be webcast at 7:00 a.m. CDT. Our EPS estimates are for a loss per share of $(0.06) for the quarter and $(0.23) for the year. Consensus estimates are $(0.07) and $(0.30) for the same periods, respectively.

We admittedly stayed too long with an overly optimistic investment rating on SIRI, based on our view in the later stages that management would be able to successfully refinance its debt maturities, an action that would then open the door to a potentially favorable market response to the generation of positive EBITDA following years of cash losses. The collapsing credit markets made the refinancing a challenge, bringing Sirius XM to the brink of bankruptcy. At that point, we felt the stock appeared to possess two potential contrary outcomes – a complete loss of value or substantial upside as attention shifted to profitability.

Enter John Malone. Liberty Media Corp. agreed to make an initial $530 million investment in Sirius XM that became part of a plan that effectively pushed off any impending maturities for at least a year. However, there are elements of good news and bad news for Sirius XM. On the plus side, Liberty’s agreement addressed the impending bankruptcy risk by providing $280 million of funds that took out the $172 million of maturing 2.5% convertible notes then due and owned by rival Charlie Ergen’s EchoStar (SATS)/Dish (DISH). Another $250 million of loans in two stages by Liberty, plus a separate $250 million bank debt maturity extension, addressed the immediate crisis.

On the negative side, the second phase of the deal with Liberty involves issuance of 12.5 million of preferred stock, convertible into 40% of the SIRI common stock. Thus, bankruptcy risk is reduced, but the near-term upside appears greatly sacrificed to this dilutive element.

The Liberty loans command a rate of 15%, providing a significant near-term financial benefit to Liberty, but added costs for Sirius XM. In addition, the slowing rate of auto purchases will work against subscriber gains that have recently been very much OEM-driven. The bottom line is that while the risk of a worst-case situation has been averted, the upside is less robust and the stock valuation is significantly diluted. Therefore, a reduction to MARKET PERFORM rating is warranted.

Disclosure: Long Sirius XM Radio

Comments

[plummer:]

Disclosure:Long Sirius XM Radio? Does this mean buy and go long or hold long if you have stock?

Mar 10 08:30 AM

[plummer:]

Disclosure:Long Sirius XM Radio? Does this mean buy and go long or hold long if you have stock?

Mar 10 08:30 AM

[JayKwiski:]

it means stick it out with them, and the stock should go up if it's still around in a year or so.

Mar 10 08:39 AM

[angrycolon:]

Everybody needs to stop listening to advice and just get one of those Eight ball toys that you ask a question of and turn it over to read the answer, like I did! (And it doesn't ask for commissions!

Mar 10 09:02 AM

[Indian Joe:]

How!
Been in this stock long, for a long time and I will wait for it to rise as soon as Obama gets his ship bailed out!
Thanks Tyler for some good news today!!!!!

Mar 10 10:16 AM

[shure46:]

I was hoping , and expecting , a reasonable pop this week , but siri is still @ .14 ( give or take a penny ) , and I think the reason why is indicated in the Motley Fool story " Circuit City Can Make You Rich " .... Sub sales are still weak .... I do believe IF , this economy strengthens ( and i think it will in a year ) , sales will improve , and that will be the catalyst everyone is looking for .... For now , we have to be patient a little longer ( I know we are all tired of waiting )

Mar 10 10:49 AM

[BigVinnie:]

HOLD ON TO YOUR PENNY'S!!!Expect 30/1 dilution, and reverse of this stock come early Oct, 2009!!!!

Mar 10 11:35 AM

[sirius cash:]

Tyler.with the merger,how many satellites does sirius now own?Living near Cape Canaveral these things arent cheap.Big 3 is selling some private jets.How about Mel selling a billion in new Satellites?

Mar 10 12:03 PM

[Strictly Bu...:]

I mean think about it whats the worse that can happen. I will be investing in Siruis. There is no other company around that can touch Sirius' technology. A definite buy.

Mar 10 07:02 PM

[Roxieanne:]

Considering the past two years with the merger, I am amazed that the loss estimates are not greater.

With the negative remarks and writing that has surrounded the merged company. I fully expected disastrous losses. Not so----these losses are not the losses of several dollars per share that one often sees with companies headed for bankruptcy.

The one negative is the 15% interest rate-----I would like to see Sirs/XM and Malone rework this rate.

As Barrington Research noted
/
"SIRI plans to release Q4/08 and full-year 2008 earnings results on March 17, 2009, with a conference call to be webcast at 7:00 a.m. CDT. Our EPS estimates are for a loss per share of $(0.06) for the quarter and $(0.23) for the year. Consensus estimates are $(0.07) and $(0.30) for the same periods, respectively-----"

Whatever the loss I expect it will be received negatively by the analysts and press as they parse every penny---rather than focus on the favorable aspect of it not being greater.

Let the investors, traders and market decide----not the press and analysts.

Tyler, thanks for posting the info reg. Barrington's opinion.

Mar 10 11:49 PM

[shure46:]

I try my best to be optimistic , and I am definately wishing this thing would get some steam going ... but MAYBE , the only thing SIRI has accomplished with this debt restructure , is to provide us with another year of uncertainty as to whether or not they can pay their debt when it comes due ..... glad they avoided BK , but other than that , we seem to be in the same boat all over again for another year .... At least we can hope for a better economic climate in the meantime , and that is probably what SIRI needs most now ....People with some extra spending money in their pockets

Mar 11 11:20 AM