XM / Sirius Under Selling Pressure

Shares of pending merger partners XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI) are under significant selling pressure this morning following a highly bearish note on the companies this morning from Goldman Sachs analyst Mark Wienkes.

Wienkes repeated his Sell ratings on both stocks. He cut his price target on XM to $6.50 from $11.50; for Sirius, his target drops to $1.75 from $2.25. The Sirius target reflects expected merger synergies; on a standalone basis he thinks it is worth just $1 a share. “While the FCC draft circulation signaling the merger’s likely ultimate conditioned approval generated a short-term lift to the stocks, we think any imminent merger related strength has passed,” he writes.

Going forward, he says, valuations should be driven by the closing of the disconnect between the $9.1 billion in industry enterprise value and the consistently declining cash flow estimates that are “insufficient to justify valuations, even giving credit for merger synergies.” The new price targets, he explains, reflect reduced longer-term subscriber estimates and reduced ARPU assumptions.

“With core demand for satellite radio falling amongst the younger demographics, vs. rapid increases for MP3 players and other new technologies, and declining core ARPU, we see long-term risk to the outlook,” he adds. Wienkes notes that his analysis assumes continued retail channel weakness, Q2 OEM production cuts, rising churn and the assumption that a la carte pricing will not materially affect demand.

Wienkes also contends that XM and Sirius may choose to raised $500 million to $1 billion in capital as early as Q3, or more likely by Q1 2009, and that the company is likely to need to refinance at least $1.06 billion, and “increasingly likely” $1.46 billion of XM’s putable debt, creating “risk of equity dilution.”

Comments

[ScottsdaleBob:]

Wow! A GS analyst strikes again! I could easily complain of the rotten odor, but the reality is the the merger has been blessed by the head of the FCC, and the stock price is going to be a lot higher than this (future GS scapegoat) analyst predicts. Personally I am holding off buying more recievers to after the merger as are most subscribers. I guess this guy missed that componant to his "in house" analytical future revenue sources. Buy what the hey! Since there will always will be market manipulation from those of the most extreme wealth that the commoner will never be able to stop, it is time to buy some more Sirius and thank them for getting me a new lower cost basis. Just thank God that there are not any GS executives that have ever infiltrated the highest ranks of this government's administration!

2008 Jun 19 12:44 PM

[omagod500:]

To clarify final paragraph: I think the profit to be made is in the short term volatility until siri/xmsr turns a profit. Anyone who played this stock right has made a killing (buying low, selling high, shorting high, covering low, repeat). Ahhh how I do wish I was one of them... I was holding out for the BIG DAY with the BIG ANNOUNCEMENT... At least this has forced me to learn more about the realities of dealing with government regulators...

2008 Jun 19 12:46 PM

[svosavvy:]

I think we are going to see people give gs analysts more credibility (ability to move markets) given bsc and leh crapping out. It's funny, I remember reading someone like 2 months ago saying siri's intrinsic value sans merger is like 2.15 now its a buck what gives there.

2008 Jun 19 02:00 PM

[MikeG:]

I enjoy my Sirius radio. However, I don't invest in either of these companies. They are both hemorrhaging money and probably wouldn't be able to exist for too long without merging with each other.

2008 Jun 19 02:19 PM

[sam4786:]

Price targets are set high, but the price is at its 52 week low. I like to check the sentiment trend
(www.predictwallstreet....) and compare it with the actual quote. The sentiment today is again in the bearish zone and the price is dropping. I’m curious to see what the sentiment will be once the merger is actually settled and the buildup dies down.

2008 Jun 19 03:00 PM

[Oh-Boy:]

I have both Sirius and XM. I will not be renewing Sirius; the music selection (in my view) is not great ("who ever heard of these songs?", my teenage daughter once complained), and I found their customer service poor. While XM is somewhat better, the point about MP3 and I-Pod competition rings true.

So hold on to the stock(s) if you like, but make sure you have a good reason to do so, other than believing it has gone down enough, it's cheap, etc.

2008 Jun 19 03:49 PM

[saxonglass:]

The data presented by the GS analyst re decreasing sales may be true. However, I think many potential buyers are simply waiting until they know what will happen with the merger and possible decreased rates for fewer stations as promised by the companies.

When the merger is announced that should perk up sales. This coupled with merger synergies will be a positive. I bought more today.

2008 Jun 19 04:26 PM

[Wez:]

I've been long this POS for years now. 1.5 billion shares outstanding, one of the most widely owned stocks, losing truckloads of money, increasing competition from alternate media sources.....I'm not selling the shares I own, but I'm certainly not buying any more. I suspect the other quarter million people holding this loser feel the same. Not sure where the new buyers are going to come from. Looks like trying to follow smart money (Mel Karmazin) doesn't always work.

2008 Jun 19 04:41 PM

[justmyhumbl...:]

omagod500....i think you are right for the most part with your analysis, but i do think this stock is more likely to hit above $3.00 in next 90 days than you give credit for.
i originally thought a pop above $4.00 was imminent on merger approval, however with today's movement i don't think so. I think approval will give it a 25-30% immediate bump, probably to $2.86 range, and it will trade between $2.75-$2.93 for a few days.

However Mel is not stupid, and once the deal is done, within 7-21 days company will come out with some better financial guidance, new PR, etc and the stock will react very positively to the news pushing it above $3.00 where it will stay.

2008 Jun 19 06:46 PM

[Neal Barkett:]

I think Mark Wienkes timing is great! This merger is not a done deal. This news is what the FCC needs to hear(read). I believe the merger still could get the thumbs down, but this puts pressure on the rest of the commisioners to vote for the merger w/o anymore strings attached. It shows the seriousness of this merger. They could kill Sat. radio if they don't get off their butts & get this passed. If it does pass Mel is the right man to turn things around. Don't forget that a lot of people are holding off to buy till they see the outcome. Things will take off if, and only if this merger gets done asap! If you think this merger is a done deal think again. This news only stregthens the case for the merger.

2008 Jun 19 07:21 PM

[wcorowitz:]

How could one guy knock the stock down so much. I smell market manipulation. One rumor moves the stock up to 3.24 one day, then short sellers knock it back down. When k-mart says he approves of the merger the stock goes up, then some joker comes out with garbage and knocks the stock down. These big institutions are making a lot of money at the expense of manipulating the market.

2008 Jun 19 09:06 PM

[Kimbo Slice:]

Two words: Bear Raid

2008 Jun 19 10:16 PM

[quixsilver:]

Something definitely stinks with this whole situation... I'm holding onto my block long term - I've given up hope and patience for anything short term. I'll take a peek 5 years from now when they're rockin' Wall St. and all devices, handheld, in-car, whatever are satellite radio ready... :o)

2008 Jun 19 11:04 PM

[oregonduck:]

I think that sirius will go at least back up to 2.50 range pre merger announcement. That is why I bought 3,500 shares today. My basis is now down to 2.62. So, if the merger is approved, I should be OK. I own 20,000 shares so a .40 share profit is still 8,000 bucks. I have a hard time believing the 1.00 per share price as a standalone company. GS would be the only analyst with that view. Some analysist would see a bright side to Sirius as a standalone with XM going under. But, I agree with the market manipulation view and the fact that there is no guidance provided by the companies pending the merger. We know that profitability is projected based on increasing subscriber numbers. Also, why is XM priced higer as a standalone than Siris? That makes no sense.

2008 Jun 19 11:24 PM

[ZenInvestor:]

With all due respect, why publish a 'rehash' with no commentary. This article is useless. Someone's ego is out of control.

2008 Jun 20 07:59 AM

[User 147552:]

Thanks for the buying opportunity!

2008 Jun 20 08:15 AM

[doc_hawkins:]

Quote "Thanks for the buying opportunity"
YOUBETYA. Put those nickles in the slots and lots of chances to pull it. Beats gambling and it's legal. What could be better?

2008 Jun 20 08:50 AM

[tom tom:]

I think gs is a lobbiest! He should be writing fairytales!The radio industry probably hyad a hand in his writing.

2008 Jun 20 09:15 AM

[jackooo:]

I don't buy penny stocks.

2008 Jun 20 11:54 AM

[bintheblack:]

Is it manipulation or they are just clueless (like an overpaid weather person, predicting the weather). I’m not sure which is worst. I’m sure both play a part. However, I still believe that companies like this are going to be the way of the future for radio and other things and the emerging company should recover nicely… I’m taking advantage of the manipulating (and buying)… Someone I’m sure is buying large volumes of both stocks to position for a nice return.

Something else that has me disturbed… The so call approval of the merger is ridiculous. This is something people choose to pay for… No one is forced to have satellite radio… No one is restricting other companies from getting in the business. Does anybody else find this to be silly???

2008 Jun 20 12:15 PM