Sirius, XM: Price Targets and Expectations

Analysts are all weighing in on the quarterly reports of XM (XMSR) and Sirius (SIRI). Some analysts are negative on the sector while others are positive. Price targets are established using various models, and differing assumptions are made by each analyst. Some analysts are basing their estimates on a merger, while others are still using stand-alone models.

The Estimate Roundup:

Wachovia - Sirius - Market Perform with a valuation range of $2.50 to $3.50

Wachovia - XM - Market Perform with a valuation range of $10.00 to $13.00

Stifel - Sirius - Buy with a price target of $4.00

RBC - Sirius - Sector Perform with a price target of $3.00

Cowen - Sirius - Outperform (stock expected to outperform the S&P 500)

Citi - Sirius - Buy/Speculative with a price target of $8

Goldman Sachs - Sirius - Sell with a price target of $2.25

Goldman Sachs - XM - Sell with a price target of $11.50

Merrill Lynch - Sirius - Neutral with a $3.11 price target in 2008 and a $3.37 price target for 2009

As you can see, some analysts are bearish and others are bullish, but the majority fall into a very neutral area. For many, the uncertainty of the merger has made changing a rating on these stocks more difficult. Compound that with company performances that could be rated as “okay”, and there is not much to get excited about. Simply stated, these stocks are all about the merger right now.

Long term upside for these equities, in my opinion, will rely on the companies proving that a merger will deliver synergies and profits. While a merger announcement will bring a pop in stock price, the main consideration is where things will settle down. For longer term investors, the question seems to be whether you are willing to wait and see if all of this comes to fruition. The merger process seems to have taken a toll on the stocks, and tested the patience of the street. Like it or not, there will in my opinion be sellers on the merger news, and this could temper the rise in stock price.

Perhaps the best way to look at this situation is to see what expectations are, and whether or not you feel that the merged company can meet or beat them. At this point the companies are not firing on all cylinders. part of it is the wait on the merger, part of it is the current economy, and part of it is high costs.

The synergies are not all instantaneous, but some metrics could scale pretty quickly. A lot depends on how the merged company brands and markets itself (As Sirius, XM, Sirius/XM, or XM/Sirius). I feel it is important that they end consumer confusion and set on a path that markets whatever brand they intend to use. Once complete, this needs to seem like one company to the consumer. Exxon and Mobile did a good job maintaining both brand names while combining the company. Sprint and Nextel in my opinion did not. Once complete (if it passes FCC muster), these companies need to virtually resell the merger in the minds of the consumer.

Where am I in this mix? While I am not a financial advisor, I am bullish on merger news, and more neutral through the end of the year. As a consumer, I am bullish on the concept of satellite radio.

Position - Long Sirius, Long XM

Comments

[verggreatness]

I agree, the future is Satellite Radio, whether it be a combined company or just one in the end. Remember the day you wish you would have invested in Microsoft or Walmart. Well here's your chance again.

[savoringthe savery]

The new company should be called Xirius, XMirius, or FCC Suck Maximus.

[Neal Barkett]

Siriux!

[cos1000]

Thanks again Tyler for the info...Short term post merger this stock will be all over the place between the level it's at when announced and possibly daily closes as high as 3.80 - 4.10. Their may be day spikes to $4.50 or even $4.75. Short term is 2-4 weeks post merger.

After every frustrated and excited stock holder gets out, in, covers shorts, jumps in long, takes new short positions, or whatever the strategy may be, here too the dust will settle and a new price channel will develop.

With the merger I am more bullish on this stock because of all of the emotion and expectation that will be present. Without the merger this story will be very very painful for the next year while one company, probably XM, goes out of business or is bought.

I am more bullish post merger because I think the channel will be "Inflated" by a back log of new initiatives announced by Mel and his management team in their need to market the new company as one. This inflated channel, end of summer through the end of the year, will be assisted by the peak retail buying season and a reinvigorated retail line. The FCC dragging it's feet is bringing this time line to a reality. The Fall price channel could easily be $4.5-$5.25 with the higher end being realized toward the end of the year. As has been said by many this is an emotionally charged stock that is not always priced rationally. Big numbers reported in Feb 09 will send this stock running to another new price channel, say $5.75 to $6.90.

For now until the FCC approves this merger $2.85 is a brick ceiling for this stock, as witnessed over the last week. Be prepared for no decision bringing this stock back down over the next couple of weeks, only getting worse as time goes by.

[4play2]

Thanks Tyler, as usual your opinion is straight to the point and informative. I would love to have higher estimates, but those will come in time.

[Rawbhurt]

I have a feeling that the merger will be announced the lates end of juin.
But conditions are going to be demoralizing.

[Oii55544]

Having lost 135K to date in satrad over the last seven years, and able to spew data until you're sleeping, I'd like to weigh in.

I find it unbelievable that people like Janco spit out numbers like " seven Billion in synergies" .... is that seven billion per year April, seven billion in ten years? .. Seven billion forever?

At any rate, having run companies I'd share that most companies can shed about 30% of their costs with a merger. This merger may extrapolate greater synergies due to satellite demand and will certainly benefit in the call centers which are chewing up 13% of total sales now. Cutting the pooh, I'd guess that "first year" synergies will be 300-400 million with second year (and thereafter until 2012) hitting 750-800 million.

This will put SIXM in the black 10-14 months after merger.

Now... the big IF.... if they are going to go to 50 million subs... and if the ARPU remains where it is, and IF the ad revenue grows reasonably, and IF the net before tax remains at 65%, then SIXM could crap out 1.8 Billion per year in profit.

How many shares are there you say .... 3.0 billion is the answer.

With a multiple of 20, and without (much needed buybacks) SIXM will be worth 12.00 per share at 50 million subs which I predict will be achieved in 2015-2016.

Is a 4.5 "timer" worth waiting seven years for?

Indeed... and that's why I now own 74,500 shares.

[fluxam]

Few seem aware that the codecs and transmission sysrems the two services use are dramatically different. Resolving that and providing new receivers likely would cost hella lots.
As a consumer, I'm strongly opposed because the ad-free narrowcast music stations I like on XM would be replaced by ad-saturated talk shows.

[Rawbhurt]

Playboy,there is alot of IF'S in this optimistic remark.
But you seem to have done you"re home-work.

[Oii55544]

Raw,

There certainly are, and all the prognostications done by company owners, analysts, investors, and pundits have been wrong for 10 years. I.E. Remember Hugh Panero (the failed and disgraced CEO of XM) statement of CFBE @ 4.5 million subs? .... seems like he really meant 14.5 million.

Thereby the purpose and intent of my many "Ifs".

One thing for sure. No single satrad provider will make a dime unless one of them goes tits up. The market is too limited with the programming too expensive, with listening options too diverse.

[163888]

fluxam, First of all you make two statements that contradict each other. If they cannot have a radio that plays both and have a fee that is reasonable for both then they would not be able to change the content vary much. If they can then it would not matter because you would be able to get the content you want using both.


Most that follow or invested in the sector are aware of the differense in codecs. As you must be aware, that XMSR has already said that its two newer satellites can carry both. Now if that is correct then it would leave the choice to SIRI after the merger to follow through on their launch later next year and the one in 2010 or not. If not then that alone saves them about 300 million in launch cost, per launch. Now I have heard some that think that they would try to move SIRI subcribers to XMSR codecs as soon as possible. I think the more reasonable solution is a interopperable radio along with satellites that can carry both codecs. Think about the savings that would come when they start to double their production numbers by putting both on one interopperable radio. Now while people will say that that type of radio cost more then a radio already produced by one company, that is true but does it cost more then both radios (SIRI/XMSR), some how I dought that. Not to mention there are plenty of other areas where the savings will come from on a more immediate basis.

[buzz6068]

I am really getting the feeling that this deal is not going to get approved, as most parties expect. A source of mine at the FCC tells me that the FCC is actively working with various state attorney generals to once and for all ax this deal

[heynow913]

my buddy at the FCC says it will be approved by Friday

[heynow913]

JUST KIDDING

[163888]

buzz6068, Let me guess he is working for Adelstein or Cobbs. Yes so let me get this straight 11 out of 50 state attorneys general are working to ax a deal that can not be axed at the FCC and needed to be axed at the DOJ. Lets be honest here the FCC really has a vary limited amount of things that can be done to punish a merger (like not let the 2 license to be combined and limit the spectrum in other ways) but really cannot stop it.

The truth be known, there are 3 republicans that are for it, and if one or both of the 2 democrat commisioners wanted to stop it, there is nothing they can do. Except stall and make trouble for Martin in the democrat controled congress. The only thing that the state A.Gs can do, is file suit in court to stop it. I might add it will be hard for them to even get a injunction to stop it, from the courts with the DOJ aready giving the merger their blessing.

buzz6068, I think you should tell your source to stop working for Aldelstein. Because he, if he believes this is possible he is becoming as insane as Aldelstein.

[cos1000]

I'm sorry but I got to say this...."that the FCC is working with various state's attorney generals..." my ass.

These state's attorney generals, 11 of them, are nothing but a bunch of wining, "DOJ Ignored", political whores, catering to their campaign contributor's needs for future benefit. They're pining to the 2 Democratic Commissioners who are the only 2 idiots left to listen to them.

So please Buzz6068 don't tell me you really feel that these State's Attorney Generals have the ear of the entire FCC Commission. In all fairness, ask your friend which democratic commissioner is really listening.

[po'd inPlano]

Can anyone please enlighten me as to why / how a 3rd party like the investment shop Georgetown PArtners is provided an audience with the FCC's finest for numerous visits YTD? I understand if this entity is voicing concerns regards the ultimate company, but who are they are demanding a 20% cut-out for minority-focused programs? Shouldn't Georgetown own a substantial share of Siruis or XM to make such a claim?

This is beyond me...they don't show on the screens as institutional holder of SIRI. Last I checked both companies are for-profit entities, not some masqurade of an NPR outfit.

[cos1000]

po'd in Plano.... My understanding is that Chester Davenport founder of Georgetown Partner is a parasite who represents diversity, in the public interest, to gain a leverage position in merger negotiations.

This allows his group to negotiate with an ineffective and vulnerable regulatory process, in this case the FCC license review, to gain a potentially profitable position without paying anything for his gain.

Tyler laid out a great review in his Sirius Buzz article, Jan. 30th, "Georgetown Partners may be a thorn to NAB and Ibiquity" with great reference articles taking a "deeper look at Georgetown Partners".

It really is an innovative, and predatory, way to grab a piece of the "public interest" pie without negotiating directly with the companies, which would be costly. If successful, meaning you get the FCC to give you stockholder investments of the merged company for free, you then can later sell your "public interest" to the highest bidder for a huge profit.

[Roxieanne]

The analysts don't want to commit to an optimistic view or even a negative view. That is to be expected at this time.

Yes, thanks to Tyler for that January post about Georgetown Partners.

Georgetown has and is hurting the merger and costing all of us money--------taxpayers nationally and in the states where AG's are being used to lobby the FCC.

The FCC Chairman has the power to make a ruling and bring this debacle to a close for the benefit of the companies, stockholders and the consumers.

The FCC Chairman has the votes on his committee as I figure. He should move ahead with the decision that he and the majority want to make.

[Tavares]

I have my house, wife, and kids riding on this merger. If this falls thru, then I am gonna have to move back in with my parents.

[Exem]

If the FCC approves the merger next Monday, how long will it be before the 2 separate stocks are traded as one and will it be Sirius stock or a new symbol??
Any educated opinions??

[cos1000]

Tavarres....Didn't anyone tell you...Your parents moved.

[killerkaul]

RE: Cos1000, Tavarres's parents moved? Wha? Wha? Where am I sposed to live? Damit!!!!!!!!!

[po'd inPlano]

Thanks for the article referral, I will definitely check it out. If/when/whether the FCC finally makes the merger a go, my educated guess on the resultant entity trading under a single ticker is within 60-90 days. Reg filings, etc. so probably looking at one final quarter of reporting for both companies

[163888]

You all knew this was coming. Po'd in Plano, it is because George Town Partners has hired the right attorney a man that has worked for the FCC for some time and now knows the ins and outs of it. He is most likely the reason for them being able to get all the meetings with the FCC.

Exem, Mel has stated that, they are ready to go as soon as the approval comes. I know some might think this is fast, but barring any injunctions/suits being filed to stop it, I can see the whole thing being done with in a week or two at the most. As for the sympol, it really will not matter it will all be taken care of along with the transfer of shares to the new company what ever the name, automatically. You as a matter of fact will be able to trade SIRI one day then the next be trading the new company what ever the name.

[163888]

P.S. I agree with cos1000 about GTP being what they are.

[163888]

P.S.S., Exem, the name will be SIRI IMO. The reason is they are the ones taking over XMSR, SIRI has the most name recognition. But dont hold me to that. There have been plenty of other companies that have bought another conpany, and then taken on the name of the company they bought. That was generally for the name recognition, so we are back to the new name most likely be Sirious.

[flyman]

Ohio Attorney General Marc Dann announced his resignation following a sex scandal. He was one of those 11 corrupt attorneys general who wrote a letter to the FCC, speaking out against the merger.
Isn't karma a bitch Marc?

[163888]

flyman, That might be true, But I think that is just your normal democrat hypocrisy.

[po'd inPlano]

It's odd, a simple comparison of market caps in the space shows some big-time players: CBS has a market cap north of $10 billion, Clear Channel also a market cap north of $10 billion (and they just went private in a heated LBO transaction).

SIRI and XM combined have ~ $8 billion market cap. Rupert Mudoch can own ~ any dang thing he desires to have but Mel you just have to wait.

[billporsche]

Clearly , this is an example of politicians in the pocket of the influence peddlers. There is plenty of competition in this market but the politicians need their pockets lined. Personally , I think that the FCC is one of the worst offenders.

[barrel]

what do you guys think SIRIUS will be worth if the FCC conditions are so bad that the deal is destroyed. This is the best solution for the FCC to save face. Approve the deal, but place conditions so tough that it kills the synergies. I think Sirius is much better long term, but do we expect a spike in the price?

Thanks
barrel

[163888]

barrel, First of all I think SIRI/XMSR would go through with the merger under any circumstance then just not do what the FCC is asking of them. Really what can the FCC do? Ask yourself what have they done before, to punish any of the other crap that companies have consistantly done that according to the FCC they were not suppose to do. Answer = little to nothing. Also it would be a hard sell to any court to put many conditions on a merger that was already given the blessing by the DOJ saying none were needed. Your mandate cant be to protect the consumer then take away spectrum that would hurt the consumer you are trying to protect. The only thing the FCC can require of them is to stick with what SIRI/XMSR has already agreed to do or would not be a big deal to do.

[163888]

barrel, here are a few examples; Many would say that the FCC required SIRI/XMSR to have a interopperable radio on the market. SIRI/XMSR say, no sorry, but we were only to develope one, we cant force the manufactures to make it. Those repeater towers that have sprung up was never suppose to happen according to what the FCC wanted they were suppose to be satellite radio not terrestial radio. Do you see what I mean, and there are number of other things done by many other companies.

[barrel]

my concern is the market reaction to the FCC decision. I understand that in the long run the merged company will announce earnings and it will reflect their strategy, but i fear the stock plummeting to 1.50.

[killerkaul]

RE: 163888 and Cos1000, Why hasn't Mel just, issued a statement of explanation, and gone ahead with the merger, now that a totally unreasonable, irrational amount of time has passed in which the impotent FCC has "DONE NOTHING," to quote my mentor J.C. It seems to me that all involved and interested parties would discount any reparations due to the stonewalling. I also feel the sentiment of the "STREET" is with Mel, and strongly against the FCC at this time. Wouldn't this be a positive influence on the merged stock price? What am I missing? Thanks. Gitrdonnnnnnnne.

[gekko13]

I think we should secretly contact "The Jackal" and forward him the home addresses of those two dumb asses on the FCC board so he can pay them a "little visit".

[163888]

My feeling Is from personal experience, you run the well dry first, going to court is always the last resort. I had a project that took over 2 years to get it through city siteplan and counsel. Even though we had every right and met every ordinance/code to build. Every month we had some new crap, our attorney would just keep saying, just keep letting have enough rope to hang themselves. Hell at one point we had the city attorney telling the siteplan they cant do that, they did anyway, we still waited. It is costly but most of all vary time consuming to go to court.

[163888]

barrel, I would not worry about a 1.5 ever the last time that price was out SIRI had I think no are at the most vary few subcribers. Compared to 8.6 million now and being able to see the end of the tunnel for profit.

[cos1000]

killerkaul.... As much as we are all waiting for the decision from the FCC to make this decision, and it is clearly their decision to make, the "road block" is the special interest groups wanting their free piece of this very lucrative pie.

All of this public record being entered at this time: the negotiations between the companies and the FCC, Opposition (NAB) and the FCC, so called neutral parties who only want spectrum for free (GTP and others) and the FCC, minority interest groups and the FCC, 11 (as of today 10) States Attorneys General and the FCC, will become the basis for years of litigation if a negotiated settlement for the license transfer is not reached now.

That is why it is so important for Martin to get a negotiated settlement that the 2 Democratic Members can sign off on. They then can put into public record a consensus vote: 5-0 or even 4-1 that will make legal action down the road by opposition interests more difficult. This obviously means that there will be concessions given by the companies. It would be very bad at this time for Mel to abandon the process, and drown the new company in litigation debt with outcome uncertainty.

Just my opinion...it's really way above my pay grade.

[killerkaul]

RE: Cos1000, Well buddy, I think it's time you were given a sizable raise. I hadn't thought about the backdoor stonewalling designed to stop any forward progress, which would bankrupt the companies and shareholders, continueing the cash infusion into the FCC and related parties. Thanks for the enlightenment.