Where’s the Bottom for Satellite Radio Stocks?

With Sirius (SIRI) and XM (XMSR) at long term lows, the natural question is, “where is the bottom?”

The answer to that question can take many forms, but something we need to consider is how it is that we got to where we are now.

1. The merger process has taken quite a long time, and the uncertainty associated with the long wait has caused the equities to suffer, and the confidence of investors to erode.
2. The Wienkes analysis (Goldman Sachs) set a low target for Sirius and XM, and the street reacted by selling off in a substantial manner.

Wienkes carries a “Convicted Sell” on Sirius, the lowest rating offered by the firm. When Wienkes issued his note, he set a $1.00 price target on Sirius as a stand-alone company, and a $1.75 target as a merged company.

Most seem to feel that the merger will pass through the FCC process, so what we are dealing with is the $1.75 price target. Sirius is very close to that target right now. So close, in fact, that we should hear from Wienkes soon. The question is what his opinion will be.

If he wants to keep a “Convicted Sell” on Sirius, then he will have to lower his price target. This puts him in a position of establishing a merged company price target that is getting quite close to his stand-alone target. Most people believe that the merger will deliver synergies, and even Wienkes himself sees synergies. This fact, in my opinion, would limit the level to which Wienkes can maintain a “Convicted Sell”. If he were to maintain that rating, any price target under $1.50 would likely begin to be questioned by the street.

Thus, one possible bottom is $1.50 in my opinion.

The other choice that Wienkes has is to “Upgrade” Sirius to a “Sell” rating. Yes, that would actually be an upgrade from Wienkes. He could establish a lower target with such an upgrade, but at that point the “conviction” of his sell rating would lose some of its power.

Whether people believe it or not, it is clear that Wienkes has the ear of the street. Whether his opinion is truly believed, or simply used by the bears to drive the price down can be debated, but at this point that debate is almost immaterial. This is because it seems likely, and perhaps even logical, that these stocks are near their bottoms.

Now, before people run around thinking that the bottom is in, I would offer a few cautions. Until the merger decision is rendered, there is limited movement in these equities no matter what Wienkes' opinion is. Additionally, these equities seem to be trading on emotion. Certainly there is no guidance yet, and until there is guidance, assumptions can and will be made.

Thus, while we may get an answer to the Wienkes saga, there is still a big factor in that a merger decision has not yet been reached.

If we have seen one thing in SDARS, it is that swings are possible with these stocks. Good news tends to drive things higher than they should, and bad news drives the prices lower than they should. Investors are at a point of deciding what speculation and assumptions to follow, and goals need to be established for short or long term. Investors' strategies need to consider both aspects. There are investors who are in for a long term, and investors that are playing the merger on a short term basis.

What to do???

Watch the sector closely. Watch the merger process. Watch the volume. Establish your goals, and try to understand the volatility that short term traders (buyers and sellers) will bring to these equities.

At this point try to consider WWWD (What Will Wienkes Do) and WWFCCD (What Will The FCC Do).

Position - Long Sirius, Long XM

Comments

[twinstwins]

Hold on people - this is going to hit the roof at $7 a share - SOON !
Good things come to those who wait !!!!!!!!!!!

[fly4u]

Thanks again Tyler for your article. I've been investing for quite some time now and this stock has been the most extreme "wild card" that I've ever been involved in. I'm usually a conservative investor, more of a swing trader... but I'm long and heavy in SIRI and plan to hang in there. My average PPS is higher than I would like it to be but I firmly believe that the merged companies will survive and actually prosper well over time. I've been following your articles and even though I know that you are not an "analyst", your opinions prove to be more on track than most analysts that have posted their ratings on SIRI. Thanks again, keep up the good work.... greatly appreciated by all of us "longs".

[User 168418]

The Wienkes analysis (Goldman Sachs) has to much play on this stock I would like to know who made this guy GOD. there are many other analysis who have a different view on the stock and dont get the play like him. As they say " you got to be in it to win it" I rather listen to Jim Cramer than Wienkes any day of the weak. $5.00 on the pop when FCC aproves the merger. Looking for stock to go up this morning it was up 8 cents in extended trading last night

[User 202507]

USER 168, IF YOU GO BACK AND LOOK AT CRAMERS HISTORICAL STOCK PICKS, YOUD REALIZE THAT HE IS WRONG OFTENTIMES..MANY OF HIS STOCK PICKS HAVE PLUMMETED AND HE CONVENIENTLY DOESNT MAKE MENTION OF THEM THE VAST MAJORITY OF THE TIME..HE KEPT SCREAMING SIRI $5 WHEREAS IF YOU WOULD HAVE LOOKED AT THE OPEN INTEREST FOR JANUARY, THERE WERE MASSIVE AMOUNTS OF CALLS OPEN INTEREST WHICH IS A CONTRARIAN INDICATOR..TOO MUCH BULLISHNESS AND THE STOCK SUBSEQUENTLY CRATER..TYLER NEVER MADE MENTION OF THIS AS A WRITER, HE SHOULD HAVE 'LAID BARE ALL OF THE FACTS'..PROFESSIONAL MONEY MANAGERS SUCH AS VINCE FARRELL ADVOCATED WAITING ON THE STOCKS AS RECENTLY AS MONTHS AGO AND HE WAS RIGHT..IN THE CASE OF WRONG VERSUS RIGHT, TYLER SIMPLY LEAD US ASTRAY IN TERMS OF THE DIRECTION OF THESE STOCKS..40% IS UNACCEPTABLE..I WOULD HAVE RATHER LEFT IT IN THE DAMNED BANK..GIME THAT 3%..IF WE ALL GO DOWN 50% IT WOULD TAKE A DOULBLEEEEEEEEEEEEE TO RECOUP OUR INITIAL INVESTMENT..THIS GAME IS RIGGED

[User 178468]

I would'nt touch those stocks right now. Those so-called analysts, have ruined what was once a great investment possibility. It's amazing how these idiots can move the market the way they do, and the bigger idiot's are all the people who always listen to them. Unfortunately, that's how the game is played.

[User 202507]

USER 178, YOURE RIGHT I SHOULD HAVE KNOWN BETTER THAN TO INVEST IN THESE DOGS IRRESPECTIVE OF FRAUDULENT BULLISH BROKERAGE REPORTS AND IRRESPONSIBLE WRITERS

[omagod500]

User202507... did you sell? or are you along for the ride?

[User 202507]

omagod, im begrudgingly holding..there were so many better opportunity cost stocks..look at few months back....mrvl and xm were same price...brcm...micron.... i had to go against my gut and buy these garbage stocks...everyone on this board is down...people should not be defensive and account for their misplaced ballyhood bullishness..and tyler DOMNT YOU DARE tell me again that you only have 10%, because you are insulting your readers who have their monies at stake and value their investments a lot more than your callous 10% self..YOU KNOW DAMN WELL YOU SHOULD TAKE COWENS AND CITIS REPORTS WITH A GRAIN OF SALT

[BURTBECK]

I'm pretty sure Tyler knows me from SIRI message board from 2004 and he will confirm my SIRI bearishness since the high 7's and he will have to admit 'me right, he wrong".
Today the combined SIRI/XMSR has mkt cap --even at these PPS--of $5.28 BILLION. This is an astronomical # for a combined co that has (as of 12/31/07--figures now are about the same, I'm too lazy to do the arithmetic for 3/31/08) ttm bottom line loss ($1.247 BILLION), deficit net worth ($1.777 BILLION), long term debt $2.760 BIILION, cash in bank $596MILLION and wasting fast, and upon merger will have over 2.9 BILLION shares over which any profits (when and how?) will have to be spread.

Just some other thoughts: when Mel said SIRI 4Q06 and 4Q07 were cash flow positive, that was a scam---accts payable zoomed both times and next quarters adjusted bigtime.
Then a gigantic challenge to refinance over $1B LTD in this credit mkt fot an entity with these pitiful metrics.
Then too growth in total subs is a decreasing percent---1Q06 for SIRI was +761K, 1Q07 was +557K, recent 1Q08 was +323K.
Churn is every quarter worse--in1Q06 SIRI needed 1.26 gross sub adds to get one net new sub. In 1Q08 the figure was 3.11 gross adds needed for one net add.

THESE NUMBERS DO NOT SUPPORT $5.28 BILLION market valuation. Add in the LTD and enterprise value is about $8 BILLION. This is ridiculous!!! SATRAD is not EVER getting to critical mass!
I not only support the GS price targets but would forecast bankruptcy for both companies as standalones, maybe $1.00 --$2.00 trading range for a few years if merger goes ahead.

[4play2]

It is strange that the previous posts from User this and User that, all seem to have simular sentiment. Hum, could they possibly be the same negative person or Goldman Sachs co-workers? User numbers, no identity. I think they or he is related to Stinky Winky. It is amazing that people who cry irresponsibilties take the time to read irresponsible writing and post about it. Now, thank you Tyler for the best information on this mess I have seen, both good and bad. I agree with you explination of the bottom and I'm ready to average down. I do believe Twins is a bit optomistic with $7.00. Would $4.00-$5.00 be asking too much??

[4play2]

One more thing. Those of you buying XM for the 4.6 premium, be careful. I see as the prices are going down the premium gap has decreased from almost $2.00 per siri share to about 25 cents now. I am willing to bet that by the time of the actual merger, 4.6 xm shares will be worth less than 1 siri share.

[cash money]

Has anyone checked on the holdings of GS with SIRI and XM. I am positive they are benefiting from there views.

[User 202507]

tyler you have done me and your readers a disservice!!! YOU SHOULD ONLY WRITE ABOUT EQUITIES IF YOU ARE QUALIFIED!!! YOU PULLED THESE B*S REPORTS FROM CITI & COWEN AND DUPE THE INVESTMENT CROWD TO JUMP IN..LOOK WHERE THESE STOCKS ARE NOW!!! not only did we lose money, but there was an opportunity cost forgone becuase we could have loaded up on other companies such as brcm, mrvl which have almost DOUBLED since a couple of months ago..PLEASE CONCEDE YOU MADE A 'MISTAKE' , TO PUT IT MILDLY
YOU JUST MAKE EXCUSES AND NOONE ON THIS BOARD IS GOING TO BUY THAT OK

[cos1000]

Tyler, thank you for presenting your "OPINION" and "CAUTIONS" here for all of us Investors to evaluate along with all the other possible information out there, and then make our own investment decisions.

As far as picking where this stock will go after the merger announcement, what the day of, the week of, or two weeks out, strap on your seat belts because its going to be a "whip lash of a ride". I don't understand how anyone can anticipate the relief to investors who just want to get out breaking even, and all the day traders who will be buying and selling this stock trying to make a buck. With the merger 3 - 4 weeks out, and after the company resells itself to the investment community, with "CONSERVATIVE&quo... company guidance, this stock will move to a 3.50 - 4.0 trading range. This range could easily go to 4.0-4.5 if the refinancing is settled out during the "reselling" to the investment community blitz. 3rd Quarter results, regardless what they are, will probably disappoint and over exuberant investor base and cause a pull back. Its the fourth quarter that I believe this stock starts to move solidly forward, with analysts breaking out all of their best guesses, manipulating new metrics, and touting the wonderful job Mel and the boys are doing in moving the company forward. End of the year could easily be in the 4.75-5.00, breaking 5.0, and then easily going to 6-6.50 when all the big investment folks can buy in to this company with their mutual funds. Just this investors foolish opinion.

[Mathman Prophecy]

User 202507, blaming others for your own stock buying decisions is childish at worst and futile at best. By your very logic, you're just as naive for trusting Tyler as 'Tyler was for trusting Citi'. Also, using Caps Lock doesn't give your ramblings more credence.

[cos1000]

202507....Speak for yourself PLEASE!!! If you lost money your a fool for selling at this time. Opportunity costs are not real dollars, although should always be considered, and they exist every time you buy any stock. Folks, including myself, have tried to be kind, but you constant complaining is getting boring, and adds nothing to the present situation.

[User 202507]

MATHMAN YOURE RIGHT, I SHOULD HAVE TRUSTED MYSELF AND NOT TYLER BUT PLEASE DONT BERATE ME FOR BEING UPSET BECUASE YOU TOO ARE DOWN CLOWN

[User 202507]

COS1000 YOU ARE DOWN TOO YOU IMBECILE..DONT THROW STONES AT GLASS HOUSES

[cos1000]

202507.....I only lose money when I sell at these ridiculously low prices. Your name calling supports your ignorance.

[User 202507]

YOU ARE BEING ABRASIVE COS1000..TREAT OTHERS AS YOU WOULD HAVE OTHERS TREAT YOU,,,WELL THESE 'LOW' PRICES ARE FALLING APART REGRETTABLY AT THE SEAMS..GODDAM,N THIS INVESTMENT

[muley101]

I think you are giving Wienkes way too much credit, and airtime, for how the stock is moving. If you overlay $DJI, $SPX , or even RKH on the 60 or even 180 day chart you will see that the stock is just moving with the market. Investors are moving away from all stocks, especially the financials and speculative plays as we move into a recession .

[cos1000]

202507.....Well this ABRASIVE, IMBECILE's opinion is that this stock is trying to form a short term bottom between 1.85 and 1.90. If it holds here today, I will buy 2K shares tomorrow to improve my long term position. Let's hope that Weinkes keeps his opinions to himself until after the merger decision.

[cos1000]

Muley101.....Great point....Taking a step back to look at the forest through the tree is always a good idea.

[bababoooie]

I am a FA KING IDIOT

[cos1000]

202507......Now that we can agree that we are Both less than perfect, we should really try to focus on what's next for this company.

[163888]

Whoo, I am glad a new article was started I was getting sick of waiting for the article to load/come up and then having to scroll down all that way. Thanks Tyler for that.

Now I get here and I see the message board morons found us again. I was afraid of that. Even though I try not to respond, it ends up being to hard not to.

BURTBECK, I am sure that everything you where saying then held true, as you "shorted" and got your "PUTs" in the stock all the way from 1 to 9 as you were losing your ass every time you had to cover or your options expired worthless, you said that cant be, it should not happen. All I can say is I sure am glad I did not listen to people like you when I bought DISH, and DTV. I would still be working now. I heard you people back then saying the same shit.

202507, Hey speak for your self. I like all the information Tyler gives. By the way it is information. I cant count the times he has said I am not an analyst, financial planner, ect., ect., get a grip. My god were else are you going to get somebody going through the FCC comments to break down a percentage on the people FOR, and AGAINST the merger, to track how the NAB scam was effecting the percentages (He also updated it every month). If you dont like it dont read his articles, it is that simple DHAAAAA.

cos1000 got DSX for 31.4 god dam it should have bought Tue. By the way, I answered your post on the other article. I am also going to be pissed if SIRI does not stay down through at least today.

[bababoooie]

Up ... Down.... who cares short term... What about Cramers statement about insolvency for both companies. Is this his way of getting the FCC commissioners off their collective duffs? If the corps do go south, Is there cause for a class action suite against the FCC for delaying a business interest with approval.

[User 202507]

ALL COMMENTS ASIDE, THESE DAMNED STOCKS ARE DOWN..LOWER THAN THE MARKET TROUGH IN MARCH..PATHETIC, DAMNED PATHETIC

[cos1000]

163888.......Read your response over there, LOL. Dave finally admitted for all of his comments, he is not an investor in this sector. He uses DCF to assess his investments, as do these professional analysts, hence the huge swings in estimates for Sirius' future. With no guidance and less than ten years of business model operation DCF is all there is for forecasting and valuation, but like firing a 8 shot shot gun when what's needed is a 22.

[killerkaul]

Whiner...... I read a few earlier posts of yours on the previous site, and I actually thought you might be coming around....... however slowly. I was wrong........sadly, the stink is back.

[163888]

BABABOOOOOOIE, Cramer has always thought that they are running out of cash. He just feels SIRI will have just enough to be FCF positive before they run out. That is the big question do they have enough money to make it. I like many think they will be able to make it. If they do we feel it is a LOOK OUT kind of stock.

202507 Hold your shit for one more day ok. That is unless you are in the margin then cover it.

[killerkaul]

Cos1000....... Just read your last post... do you and 16388 like to hunt pheasant? A college buddy of mine, east river here in So. Dak. has some great pheasant hunting.

[163888]

cos1000, You remember what I said in my very first comment on the last article about the amount of interest in this stock. What you just said about Dave just confirms it. I have to admit I will never get why anyone that does not invest in these stocks, bother do spend so much time on them. I will tell you what that tells me, that this sector is going to be big. Think about it, it has captured the interest of people that have nothing to do with it.

[163888]

killerkaul, no I dont hunt anymore after my brother was shot by some nut ball, they took with them hunting. Yes that is right he shot him on purpose with a 30/30. Amazing enough he is still alive. He had a hole in his lower back 7" in diameter and is missing 3'-0" of intestine. But is still walking around.

[cos1000]

Killerkaul......Back in the late 70's, early 80's, I lived in Glendale, AZ and an Air Force buddy and I use to go early morning quail and dove hunting in the desert. Back then Phoenix only had 650K people and you could drive 5 minutes into the desert and walk for hours without seeing anything but a cow (open range), rattle snake, and a few coyote. Now that I'm back east, Massachusetts, I wouldn't be caught in the woods with all the "would be" hunters. Your friends place sounds great, but it has been years since I've hunted. A little fishing, salt and fresh water, and some hiking (off season) fits the bill now days.

163888....I think your right on the mark that the awareness level, investor or not, is on the rise and will continue. When people start to really understand the "second chance", used car market, and the growing subscriber "fish pond" that it will become, this company will really be able to post solid results. That's when people will look back at weeks like this and celebrate their tenacity or lament their weak fortitude.

[quixsilver]

Someone needs to put together a viral, pro-merger youtube video clip exposing the FCC, political agendas, merits of the merger and undeniable benefits and upside of this stock. Basically take everything we've been talking about for the past year+, including Cramer, FCC, Weinke, Karmazin, blogs, etc. A 5-10 minute clip should suffice - perhaps a "Michael-Moore-le... type production. Watch it catch fire on the Internet, Digg, news portals, myspace, facebook, etc. Public awareness and subsequent pressure on the necessary parties to do the right thing.

I'm surprised Mel and Co. haven't looked into this. If they don't, someone should...

[killerkaul]

163888.....Sorry about your brother. Yourself and Cos sound like friends I could spend a day or two hunting with. Thanks.

[quixsilver]

I don't know why my comment was truncated with "..."

It should read: Michael-Moore-let's-ex... type production.

[quixsilver]

Again!? WTF? OK one more try: Michael Moore let's expose the corruption type production

[chicago gary]

163888 - I purchased the stock (dsx)earlier in the day, before your post. I ALWAYS do my own homework. I am a big boy, I make my own decisions. I will listen to or read others opinions, but if it doesnt work out or if it does, it is my own doing.

I have followed dsx for quite some time. Love the dividend and growth. It is a cheaper DRYS

[omagod500]

I see this sentence, or something to the same effect often in articles concerning satellite radio:

"The merger is expected to be approved by the FCC within weeks, and by the end of X at the latest". Since DOJ approval, X has equaled April, May, and June. Now I'd say its at July.

What is everyones opinion as to the absolute latest that we will see final merger approval (an FCC vote) and the closing of the deal? And I mean your absolute, "i'd bet my families lives on it", no way it wont be done yet date... If you asked me back in March, I would have guessed May (and my family would be no more...). I anticipated some political and beaurocratic crap, but this is ridiculous. I'm no Washington insider, but I thought the Department of Justice's decision would send a message to the NAB lobbyists and the FCC that Uncle Sam was actually in it for the people, and this was about more that corporate titans and politicians wheeling and dealing behind closed doors.

Am I still naive to think that it will be done by the end of July?

[cos1000]

Killerkaul....maybe in a couple years we can have a SIRIUS hits 75 mil subscriber reunion, we'll sell 100 shares a piece and pay for the whole thing. Right now that might get us a "bus ticket to nowhere and a Big Mac"

[muley101]

Again guys, the movement in SIRI correlates almost exactly to the movement in the market (DOW, S&P, and even XLF - Regional Bank tracking ETF) for the past 60 days. Hang in there, the rewards are coming. Investors will be back on this stock like buzzards on a dead possum after a car passes.

[cos1000]

muley101.....I can see it Stan, the stock rising and buzzards are circling, We're getting pretty good volume and no strong indication down, 1.86 - 1.92 so far. Run Blue Dog Run!!!!!

[jimmydasaint]

So Cos, you're saying we should still ride this pony until the ned of the year to have a chance to sniff the $4.00 to $5.00 mark? Ouy Vei.......My break even point is $4.00 and I'm blowing out of this thing. I'll get back in if their business models and partnerships strengthem over 2009, but I can't handle another roller coaster ride from this company again!

I'll still be amazed if this merger happens before 2009 ;)

[killerkaul]

......................... I like Big Macs.

[killerkaul]

hey muley...... I like it!

[cos1000]

jimmydasaint.....yeah and the merge has to happen. The merger vote is in circulation right now for consideration. The vote is results in favor will most likely be known when Martin is back from Asia next week. The June open meeting was canceled, there is no reason the vote shouldn't be done by the July meeting. I check the FCC open meeting schedule today and didn't see the July meeting date posted yet. I'm not say that over the next six months to the end of the year that the stock won't spike above or below my predictions. I just feel that the stock from here with even the merge is going to need six months to rebuild it base on solid performance and good guidance.

[User 168418]

This stock will pop on the merger and if we break down the price of OIL. Blame the FCC was sitting on this so long they took the wind out of our sails. If the FCC just came out and voted as a group we would be I bet at $4 to $5.00 a share right now. Three simple ways to correct the stock right now FIRST..........approve the merger,
second............Have sirius reinvest in it's own stock " a buy back",
Offer a very basic "student package" at $3.99 geared to young adults by broadcasting college radio stations and other music at a deep discount by making it affordable by off set this with advertising. In the mean time Email the FCC and tell them to stop bleeding these stocks and vote on the merger.

[User 168418]

LET MEL KNOW WERE BLEEDING HERE IS HIS EMAIL ADDRESS karmazinm@siriusradio....

[bababoooie]

omagod500,
"i'd bet my families lives on it"

I believe the merger will be approved by the 22nd.

BTW:
You've been adopted :)

[cos10000]

The relevant question isn't "where is the bottom?" The relevant question is "where is the top?"

[cos10000]

The cult mentality here is breathtaking.

This author's reports tend to parrot Wall Street research and media reports, with some benign commentary and speculation thrown in for good measure. I'd like to hear some real insight from this self-appointed satellite radio "expert":

What is this author's upside price target on SIRI? What is his "sell" price?

At what point does he think SIRI will be overvalued, and what is his basis for coming to that figure?

I hear the sizzle, but I don't see the steak. If the Goldman analyst is so inaccurate, let's hear the author's rationale and alternative target price, and how he arrives at it. What discount rate does he apply in his DCF analysis?

If $1.50 is the bottom, then where is the top?

As they say prior to takeoff, "keep in mind that the nearest emergency exit may be behind you."

[User 168418]

buckle those setbelts for take off "vicar" it's been a long bumpy ride with cheep fuel at times.

[User 168418]

pop the cork.............up 7 cents today!!!!

[Freep]

Wow...the priced closed up a few cents today. Time for another Democrat politician to grandstand against the merger, another negative story, or a downgrade ordered by the NAB. Reply

[cos1000]

Vicar what are your thoughts on those questions? How much are you invested in these stocks? I would truly appreciated some more input in setting value to this stock. What's your bottom for this stock but more importantly, what's your top by the end of the year? With all the DCF assumptions, how can you effectively use it to evaluate this company as an investment, especially without company guidance, or knowing if the merger will go through. You might as well throw darts blindfolded. Or, we could spend the rest of our days arguing whose guess for discount rate, cap ex and cash flow, is right on a company without an operating history. Also using DCF, with all of its moving parts (unknown), projecting 2009, 2010, 2011 just gets even more interesting. When its all said and done, no matter how sophisticated DCF, discounted cash flow, method of investing sounds, it doesn't work very well for nascent companies. I will give though there isn't much else at this time which is why this company is getting pulverized by the street. The street nor the company has been able to establish cost synergy savings, what cap expenses will be for satellites, when to launch with date certain, until they essentially know what they will be: 1 satellite radio company, or 2. You sound like the author I came across on a Barron's article. Are You?

[cos10000]

cos1000, DCF is imperfect. But if not DCF, what tool do you use to value this company? Hunches and giggles? DCF has faults, but it's better than blind guessing, herd mentality, and wishful thinking, which accounts for most of the rhetoric on this board. I don't see enough risk-adjusted upside beyond current levels enough to justify taking a position in this stock. There are simply too many better investment opportunities out there on a risk-adjusted basis for me to bother committing funds to this equity issue.

[novistor]

Does anybody think selling at 4.25 too conservative?