BGB Securities Reiterates: Sirius XM Stock Is Fairly Priced

Nov. 7.10 | About: Sirius XM (SIRI)

By Demian Russian

In a research note issued this morning, BGB Securities media analyst Murray Arenson reiterated his HOLD rating and $1.50 price target on Sirius XM Radio (NASDAQ:SIRI). While Arenson saw “continued operational strength” in the Satellite Radio providers Q3 results, Arenson sees Sirius XM’s stock as being “fairly valued” at this time. He said:

“Our valuation analysis remains unchanged since last month. We ascribe a value of $489 per subscriber and maintain our price target of $1.50. Sirius continues to execute well, with strong subscriber growth and expense management.”

While noting that Sirius XM had raised guidance “slightly,” his previous forecast already reflected the new projections. Arenson sees Sirius XM’s new guidance, given the Q3 results, cautiously implying a softer Q4 than he was previously forecasting. Sirius XM raised their revenue guidance from the previously projected $2.75 – $2.8 billion to the new “exceeding” $2.8 billion.

Adjusted EBITDA guidance was raised from $575 million to $600 million. FCF went from “approaching” $150 million to “exceeding” $150 million. Arenson raised his full-year 2010 adjusted EBITDA forecast from $605 million to $614 million and his full-year 2011 adjusted EBITDA forecast from $692 million to $706 million.

Arenson sees the company continuing to execute well, keeping costs under control in tandem with growing subscribers. While Arenson views Sirius XM management’s guidance reflecting “continued uncertainty regarding auto sales and its potential impact on subscriber acquisition costs (SAC),” he also views that guidance as being conservative.

He also sees auto sales coming in strong, noting that October vehicle sales were up 17% year-over-year, equating to a SAAR of 12.26 million. Arenson is assuming vehicle sales of 12.8 million for full-year 2011.

Regarding the lack of an announcement regarding Howard Stern’s contract with Sirius XM, which expires at the end of the year, Arenson sees “attractive economics for Sirius in any reasonable outcome.” While he sees the Stern situation remaining “in flux,” he suspects that Sirius XM and Stern will eventually come to terms.

Disclosure: Author is long SIRI