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Citi analyst Tony Wible assumed coverage of satellite radio, and has opened up with an $8 price target on Sirius Satellite Radio (SIRI). The detailed report deals with the companies as a stand alone as well as with a merger. Wible sees a 70% chance of FCC approval on the merger.
The report is somewhat curious in the price targets for XM (XMSR). News wires are picking this up as an XM downgrade, when in fact, the assumption of the merger passing would have a much higher target for XM given the conversion ratio of 4.6 shares of Sirius for each share of XM.
Fresh and Simple Reasons for Success
Assuming Coverage of the Satellite Radio Industry
- Staying Strong – Satellite radio should continue to change the audio entertainment industry and gain share as its proves to be fresh (no need to create play lists or buy MP3s), original, cost effective, and a simple way to access premium/long tail content that can not be supported via radio or MP3 models. Given the highly fixed cost base of the companies, we view the sub growth as the key driver of the stocks and we see the industry having up to 55 mil subs by 2011 (+33.3% CAGR).
- Economy Hurts Near-Term Results — Our standalone estimates are generally below consensus reflecting economic weakness and lower auto production. The fixed cost leverage compounds top line weakness; however this should be more than offset by substantial merger benefits and increasing OEM penetration rates.
- 70% Merger Probability — We believe that the proposed merger between SIRI and XMSR will drive significant costs savings (we forecast $500 mil by 2010 or 13% of the expense base) and potential revenue synergies of another $400 mil.
- Alternative Valuation Study — While we value SIRI and XMSR using a DCF we also looked at terminal cash flow per sub and EV per sub, which shows SIRI and XMSR could be valued in a best case up to $8 and $30 (or $10 for the combined company).
- Buy SIRI; Hold XMSR — We rate SIRI Buy (1S) with an $8 target based on: 1) a 70% probability the deal closes and a $10.00 target and 2) a $2.25 stand-alone value. We rate XMSR Hold (2S) with a $12.25 target (assumes a 70% probability deal closes soon and SIRI trades at $3 at the close and a $9 standalone value).
Sirius Buzz Readers can see more excerpts from this report in the Sirius Buzz Forums.
CITI Report Explained
With the report issued by CITI Thursday, some confusion ensued as to what the report represented in terms of XM Satellite Radio. Some saw the report as a downgrade because the rating on XM is now a hold. The price targets for XM and SIRI in the report represent differing timeframes.
Specific to the merger, the $12.25 price target has been established in the near term and at the time of merger approval (which they believe is due soon and has a 70% chance). Once completed, the XM stock would be converted to Sirius shares. Thus the near term target for Sirius is $3 and XM is $12.25. Once the merger happens, the long term outlook happens. This is where an $8 to $10 target is arrived at for SIRI (as a merged company).
As standalones, the longer range target for XM is $9 and for Sirius is $2.25. Obviously, the analyst believes that the merger makes the sector more attractive.
Position: Long Sirius, Long XM.
This article has 80 comments:
I say this as one of the biggest supporters of the merger, so dont jump down my throat so quickly. I am just being realistic. There is no way the company grows over 200% in the next 3 years. Even at a VERY nice growth rate of 21% per year, that only puts the combined company at 45 million subs, and that is a tough growth rate to maintain.
Love the fact that this guy believes in the combined company and that the merger is a done deal, but we must be realistic in our expectations.
On another note, this article is quite a reversal from this site's previously pessimistic opinion of Sirius and the merger.
s
preceding as though that merger is a slam dunk! You get the idea msft and Yahoo ok....siri and xmsr not ok? Why doesn't Mr Karmazan get with the program! blast the FCC!! and demand this approval go forward...
If this is going to be approved by May 1st and is running up to $3.50 before then, they've got about 4 days to get it done. why would they wait 'til the last minute? If Siri/XM don't make an announcement that they have extended their agreement (again, waiting on FCC) then that may mean you are right. Or it may mean that one of them is backing out of the deal. Either way, it seems ridiculous that the FCC would force Siri-XM to revisit an agreement ext. just because FCC hasn't, after 5 weeks since DOJ, made and announcement and decided on spectrum allocation already. good grief almighty.
s
where are those reports/articles? i haven't seen them.
Would not want to sell or buy based on your writing.
Noone here knows what will happen with the price of the stock.
My biggest fear is a "no decision", "pocket veto", "Let-the-companie... die-on-the-vine", attitude that seems to be taking shape at the FCC. This attitude has been developed with help from all the opposition, and it is devastating. No decision is a decision.
We will know in just a few days. If the waiting is going to continue, the companies will have to announce an agreement extension, if not the decision from the FCC will be announced before May 1st.
A pull back today in the stock is just a little nervous and maybe smart, profit taking from the investors who have taken advantage of purchases at 2.36- 2.45. If you bought 10,000 shares then, why not take some off the table with a nice little 9% gain. No announcement "Should" make us nervous, and taking a "little" profit while we wait an wonder on low volume is OK. "Longs" can make money too you know.
Even after an announcement of a merger approval, and the initial surge, with shorts covering and current spectators afraid they'll miss the boat, small investors will be in and out of this stock from here to $5.00 a share, and that could take until the end of the year. Once the ETF's get involved, above $5.00 a share, the ride up should smooth out a bit. The reality is until the new company shows strong signs of positive performance, positive FCF with a date certain of profitability achieved, it will be a high beta stock.
Thank You for the kind words. If you like the radio show please pass it along to others, and rate it. Feel free to drop an e-mail any time
Sirius
I agree with you NotVerySmart, that there might be something very interesting to the forthcoming GPS addition to the iPhone. It's tantalizing.
p.s. you're smart. do you have a website or blog? and i hope you are right about next week's Sirius developments!
I like to play the "short contrarian" plays as shorts are greedy bastar...s that are extreemly adverse to risk. If you think (regular) people sell on bad news you should see shorts cover on good news. They (shorts) are strictly technical players that are opportunistic and short term minded. They don't care about company potential or relative strength, they just see a stock tanking a dive and jump on. When you see a stock shorted more than 10% it's a strong sign they will move to get thier porfits out on a bump. A good example of this (besides SIRI) is TASR (I make no reccomendations here). Bad earnings got them a 25% drop last week and if you eye the chart you'll see there is a standard dip then recovery (short - then cover). I would wait a few more days on this one (TASR), beacuse it looks like it will take 'till Wednesday before the big move back up happens, but whenever you see a dip that is over done in a compnay with little risk (no debt) and strong contracts or sales momentum, it's a short contrarian play. I want to reiterate that I AM NOT RECCOMENDING TASR for the regular folk. The long term trend is poor, but it is definatley oversold (27.1% of float out in shorts) and will pick up a few bucks next week. Should hit about 7.20 then bounce to $9. The only thing I'm long in for the long term plays is GOOG. With the idiots at YHOO likely to turn away the 50% premium from MSFT, GOOG wins next week and beyond. I also like APPL a lot, but the upside is overdone and I'm looking for a $152 handle before I buy it back.
But I digress....I really like SIRI both long term and short term because they have legs. They will beat earning estimates, they will get FCC approval (see DOJ reccomendation) and they will hit $5 in the next Q. I have reset my short term sell target to $4.08 (sell 20% to play with the house's money) and moved my long term target to $5.70 based on technical data. I am a high risk player, so please take my words with a 10 pound block of salt.
Disclosure:
Long SIRI 69.5k
Long TASR 12.2k
Long GOOG 523 shares
I wish all of you the best. Take care. I'm gonna go parasailing now. :-)
great feedback! watch out for the sharks out there!
It is clear at this point that most SIRI shorts are also longs in XMSR, and are playing it that way for the certain gain.
I agree that the arbitrage spread is dead, if your long XM you might as well stay long until the merger, but running for cover if your short Sirius is a great idea. Buy in Monday and stay long.
ap.google.com/article/...
It is clear you do not get the the arbitrage play at hand. The reason I say that is, it is a play inwhich you wait till after the merger gos through (ie. you are hoping the merger gos through). You wait till after the companies are compined and then use the long you bought in XMSR (lets say 10,000 dollars) which is then converted to SIRI, to cover your short in SIRI (once again it has to be 10,000 dollars, the same as you put in XMSR), you then get the difference in SIRI shares that are left over. The other reason I say you dont get it, is you think for some reason I am short SIRI inwhich the kids collage fund is at risk. While if I was playing the arbitrage this way (I am by the way long long SIRI/XMSR) there would be nothing at risk, this is a way to play it and have almost no risk, all be it limited gain also.
I say this, it makes no sence any other way for the short holdings to go up after the DOJ approved. That most people think the merger will happen now and SIRI will go up. The only lodgical reason anyone would be shorting SIRI from the time the DOJ approved to now, is to be playing the arbitrage spead between SIRI and XMSR.
If you do not see what I am saying after explaining it a second time, your name covers you vary well. But as you said we will see how much the short holdings go down after the FCC approves, I think it will happen after the companies merger and the 4.6 SIRI are given for each XMSR share. There will be little short squeeze while there will be a move up it will be nowhere near the 5.00 people think. I do not think there are enough shorts channel serfing to make up for the people that just want out. I would like to make this clear with the exception of 5,000 shares I bought back at 2.45, I am long with my main holdings in both. I am in for at least three more years, unless I get another DISH, I will start selling before that time frame. So please, the rest of you dont make the mistake NotVarySmart made by thinking I am a short seller. I cannot believe anybody could make the mistake that I was, if they understood the arbitrage play, but some how NotVarySmart did make it.
The Extra
Am I the only one out there?
Tiedeman
Written by dave
Monday, 14 January 2008
If you are a REAL AMERICAN you will want to do this. Here's a link so you can email the FCC Chairman Kevin Martin www.fcc.gov/commission... -- and tell him to get off his a$$ and APPROVE the Sirius XM merger! It's good for the people of America!! The only people it hurts is the National Associations of Broadcasters -- these greedy corporate fools will still own 98% of the market (I think Clear Channel owns every single radio station in my city - oh and there biggest shareholder at one time Red Mccombs tried to move the Minnesota Vikings to TEXAS!) but that has nothing to do with this issue. So you are telling me that they are so worried about Sirius and XM being a "monopoly" when they own 98%?? With competition from ipods and future innovations there will be plenty of competitors around!
THE BOTTOM LINE OF THIS MERGER IS LOWER PRICES AND MORE CHOICES FOR ALL OF US! Subscription rates will be half the price they currently are today and you can choose your channels!! Instead of getting what in the package! I have Sirius and I can listen to Stern and all NFL games...but I'm sure XM has so cool things I rather have then some 50's stations I never listen to. WE CAN'T LET THIS BE BLOCKED, OUR GOVERNMENT HAS ALREADY LET US DOWN SO MANY TIMES. You want to talk about a Monopoly?? How about the phone companies! I worked for one! SBC - - Do you know that SBC is a company because in 1984 the Government rightfully determined that ATT was a monopoly and they had to break into 7 "baby bells" SBC being the smallest of the baby bells -- well SBC recently ACQUIRED good old "Ma Bell" so looks like we have come full circle! But the FCC approved this merger!!!!! Do you know that they only reason SBC came to Minneapolis and why I had a job?? Because the FCC said they had to IF they were to let them by AMERITECH (the main phone company in Illinois, WI, and other states in that area. So SBC must have really wanted to buy Ameritech because they were going to open in 30 new markets where they were NOT the main phone carrier....BUT guess what?? Bush came into office and there was a quick change of plans! Now I don't know if this had anything to do with the Fact that SBC's Corporate headquarters was in TEXAS (funny Bush, and a big Radio Executive are from Texas...and both owned Pro sports teams...hmmm) OH YES AND HOW DID I FORGET--- the SBC CEO at the time was one of the names being thrown around to head up the FCC??? WTF is wrong with our leaders! They have f#cked our country up so many times at the PERSONAL AND POLITCAL gain of this elite group of super rich people. All I ask is you throw us a mother f%cking bone some time and give us Americans who don't even have control if you are voted into office (you were appointed), the bone here is lower priced satellite radio with more programming choices!
Unlike the fake emails that the National Broadcasters are sending pretending to be from real people, this one is real!! And you can verify that by calling me at 612-203-1775
THE BOTTOM LINE OF THIS MERGER IS LOWER PRICES AND MORE CHOICES FOR ALL OF US! Subscription rates will be half the price they currently are today and you can choose your channels!! Instead of getting what in the package! I have Sirius and I can listen to Stern and all NFL games...but I'm sure XM has so cool things I rather have then some 50's stations I never listen to. WE CAN'T LET THIS BE BLOCKED, OUR GOVERNMENT HAS ALREADY LET US DOWN SO MANY TIMES. You want to talk about a Monopoly?? How about the phone companies! I worked for one! SBC - - Do you know that SBC is a company because in 1984 the Government rightfully determined that ATT was a monopoly and they had to break into 7 "baby bells" SBC being the smallest of the baby bells -- well SBC recently ACQUIRED good old "Ma Bell" so looks like we have come full circle! But the FCC approved this merger!!!!! Do you know that they only reason SBC came to Minneapolis and why I had a job?? Because the FCC said they had to IF they were to let them by AMERITECH (the main phone company in Illinois, WI, and other states in that area. So SBC must have really wanted to buy Ameritech because they were going to open in 30 new markets where they were NOT the main phone carrier....BUT guess what?? Bush came into office and there was a quick change of plans! Now I don't know if this had anything to do with the Fact that SBC's Corporate headquarters was in TEXAS (funny Bush, and a big Radio Executive are from Texas...and both owned Pro sports teams...hmmm) OH YES AND HOW DID I FORGET--- the SBC CEO at the time was one of the names being thrown around to head up the FCC??? WTF is wrong with our leaders! They have f#cked our country up so many times at the PERSONAL AND POLITCAL gain of this elite group of super rich people. All I ask is you throw us a mother f%cking bone some time and give us Americans who don't even have control if you are voted into office (you were appointed), the bone here is lower priced satellite radio with more programming choices!
Unlike the fake emails that the National Broadcasters are sending pretending to be from real people, this one is real!! And you can verify that by calling me at 612-203-1775
"When everyone thinks one way, I bet the other way." - Rick Roma
P.S. Good Fella - You should NEVER put your phone number on a public site. Very risky.
Also if I sounded rude, I am sorry. It was because I thought I made myself clear the first time. Then in your follow up comment you had me saying something I absolutely was not. You at one point basically called me a short seller and should cover, which was clearly not what I was saying about the short position.
Anybody here have anything in ENVI or ever heard of it?
By the way, you need to tie up a lot of money in this strategy to make it worth the effort, most would measure "opportunity costs" as a reason not pursue the limited gain. Simply put there are better ways and places to put your money.
To my point, after all this analysis, what is the catalyst beyond the merger, for the stock price to move up, in your opinion? So far from you, "it won't be the merger" because that's a given. It won't be short squeeze, because as Tyler has already explained and you have reiterated, there will be plenty of shares available to be bought back at that time. So what is it and in what time frame that makes the stock price go up and keeps you Long.
Many here, including myself, have explained that the stock goes up post merger with positive results in future quarterly reporting. That is to say we'll see lower operating costs due to merger synergies , increase revenues with better retail from pent up demand for the new radios, positive cash flow at a sooner date than stand alone, increased oem penetration, increased advertising revenue with increased market share, better partnering opportunities with only "one shop in town" to deal with, decreased acquisition cost of new talent, increased revenues from new innovative technologies, ie, GPS, SAT TV, I-phone capabilities.... Need I go on here....I'm sorry I just got carried away with the endless possibilities. I see this company's stock price being nothing but higher and the arguments about the arbitrage play being meaningless.
Please understand, I do not want to see this stock "Shoot Up" in stock price, a nice steady stair case chart would be a welcome sight, but I do want the company to be "flat out" successful. A successful company will bring me much financial reward and great listening pleasure over the next 12-18 months. $8-10$ per share in two years for this company could easily be conservative. Remember the market prices in future expectations. With positive quarterly results future expectations for the big investment houses,( over $5 per share is where they figure in), could easily push this stock to unreasonable highs, at that time I will sell it all and make some "Sirius" money. Now tell me if that doesn't sound better than this arbitrage play.
Yes there would be alot of money tie into it, hence the amount of short holdings. For you and I who are gamblers (you would have to be to be in Siri when we got in it) 8 or 9 percent in two or three months which works out to 32% annually that might not be a great return, then again I have more in DSX or PVX then what I have in SIRI, because they have a 7 (DSX) and 13 (PVX) percent dividend.
I agree totally with your third paragraph. I just dont want what we got when the DOJ approved which was a buch of disapionted people that had high expectations on the price that did not materialize.
I do believe that when it crosses the point of being FCF positive and people see that profit will come soon the stock will start on its way and at that point it will be a constant up trend. When I say that, I mean I can see in it going from 4.5 after first year after the FCC approval, to 10 after the second full year. Then it being as high as 50,60, or even 70 by the end of the 4th year after the approval. Now you can call me unrealistic.
I think your totally right on the last paragraph also. But I did not see anywhere where you were calling for a hugh short covering, that lifts the stock to unreasonable levels right after the DOJ approval.
in my opinion SIRI is way undervalued rite now.
Yes the merger is gonna happen and yes
look at the 2 incomes with only 1 expense
U need to understand the politics of it and
sit back and wait for it to happen.
Other News
I got completely out of TASR today, didn't make much, but I made enough to smile :-). That one too was just doing a whole lot of nothing. Moved proceeds into GOOG , cause the signals are great. Looking for $630. Baught a little aaapl today (just a nibble), can't seem to stop that thing with a truck. I'm still with you guys and love SIRI short term and long term, but I have to be honest. If they don't pull of this merger by the 1st.............
Take care.
Sincerely,
The SIRIUS Investor Relations Team
==============Received yesterday Apr 29th.