Lehman, JP Morgan Weigh in on Newly-Formed Sirius XM Radio 78 comments
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Lehman Brothers analyst James Ratcliffe issued a report Tuesday maintaining his overweight opinion on Sirius XM Radio (SIRI), but adjusting his price target to $2.10. The analyst sees some bullish aspects of satellite radio which derives a price target of $3.19, but also has caution in certain areas as the business of satellite radio moves forward as a merged company which yields a $1.19 target.
Ratcliffe is expecting Sirius XM Radio to move aggressively to generate synergies across its cost structure. The analyst sees the push-marketed business model of the OEM segment to be attractive, something I had covered in a previous article titled “OEM Has A Chance To Deliver $$$ To SDARS“. While I see the attractive nature of push marketing, there still needs to be consumer pull. At this point, with Take rates above 50%, it appears that the desire for satellite radio from consumers is strong enough that push marketing could take the concept over the top.
Ratcliffe noted that the merger process was a distraction, and that refinancing costs increased the interest burden, but views the transaction as worthwhile (near-term savings around $400MM+/year, $800MM long term).
The analyst maintained his rating, but brought down the price target to reflect a conservative stance on some aspects of the company going forward. Ratcliffe sees $460MM in 09E merger synergies, which is above the $400MM guidance issued by Sirius XM. However, he notes that the EBITDA and pre-satellite capex FCF are below company issued guidance ($250MM and $(36)MM loss vs. $300MM and positive guidance, respectively).
Lehman ran a bull case and bear case scenario on their valuation, based on varying the terminal conversion rate, SAC for used car reactivation, timing and success of GM (GM) contract renegotiation, overall SAC, and the rate paid on 2009 debt refinancing. Lehman’s bull case valuation yields a $3.19 YE 2008E fair value (50% above our base case) while our bear case yields a $1.19 fair value (44% below our base case).
Other points by Ratcliffe include:
- OEM will be the driver for subscriber growth.
- Retail will be a small contributor.
- FCC concessions unlikely to have a negative impact on the company.
- Credit markets in 2009 may be slightly better, but company should have a cost cutting track record and should be able to obtain the financing needed.
JP Morgan has returned to the satellite radio analysis arena with a cautious neutral rating. The firm, which was involved in the merger process, believes the post-merger company Sirius XM Radio will survive and have new flexibility to scale its expenses and capital structure to the market opportunity.
On the cautious side, however, JP Morgan feels that Sirius XM Radio “faces a trifecta of macro, valuation, and capital structure concerns that are likely to weigh on the shares near term, making us more cautious than when we last covered the pre-merger companies 1.5 yrs ago, rating them both OW.”
They feel that post merger there is a better company, and they see the synergy story in a value similar to that set forth in guidance by Mel Karmazin. JP Morgan sees the guidance for $400m of merger synergies in 2009 as attainable, and further points out that synergies growing in subsequent years is a reasonable assumption. JP also sees positive free cash flow in 2009 and beyond.
On the caution side, the debt picture of Sirius XM Radio raises a bit of concern according to the analyst. Sirius XM has $1.085b of debt coming due in 2009. The common assumption is that Sirius XM will be able to refinance as the business should be stronger and credit markets hopefully no worse than recent days when Sirius XM refinanced $1.25b of debt for the merger. Thus, better financing terms are tied directly to the company performing better, as well as the condition of the credit market. Given Mel Karmazin’s history of obtaining his goals, the real concern will be the credit markets, which most assume will not be worse when the financing becomes a short term issue.
Noting the condition of the economy, JP Morgan sees satellite radio as discretionary, which could present some harder than anticipated times for Sirius XM. However, even in a harder economy, satellite radio seems to be holding the line on costs, while improving take rate and churn. Over the next couple of years, JP Morgan sees overall installations in the OEM channel ramping up to 64% by 2010 in contrast to about 35% in 2007.
The reason for caution? JP Morgan sees valuation as challenging. At a price of $1.46, just over 3 billion shares, a market cap of $4.4b, and a net debt at $3.0b, they estimate the firm's value at $7.4b, 20.4x our 2009e adj. EBITDA, which they note is slightly above guidance. JP Morgan's analysis of subscriber economics suggests that the current enterprise value discounts the current sub base, but not growth beyond that.
Position - Long SIRI
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This article has 78 comments:
If I were niave I'd be thinking how odd and dumb it would be that supposed shareholders would be blogging trash about something they own and would hope would appreciate. I think the real world is that there are droves of short selling cowards posing to be long investors in these forums who are constantly hammering SIRI to make a quick buck regardless of the merit of their case. How can we petition the SEC to ban naked short selling on SIRI who is obviously under attack by the vultures? I'd also be very leery of the motivations of the supposed analysts who keep trying to sink things as I'm sure the NAB didn't just go away when the FCC vote was cast, the real war is on as SIRI is now a direct threat and they can't do anything positive about it because of their business model.
I called my local branch office, and I was told the reason is that the merger and name change is going through today.
7/28/08
Shaw Jack Allen
Award of Options 184,000 shares at 0.00
Parsons Gary M
Award of Options 3,203,583 shares at 0.00
Zients Jeffrey D
Award of Options 1,242,000 shares at 0.00
The company is going broke and just gives away 4.5 mil shares to executives. I understand that 4.5 mil shares are only .9% of the shares available, but you would think with already making at least (and I am being conservative) 1/2 mil in salary, they could afford to buy their own shares to help the company.
Here is the link to the most recent XMSR proxy: sec.gov/Archives/edgar...
You'll probably have to do more digging if you want to know details; their various agreements will be exhibits to certain SEC filings.
It seems the only sure things in life
are
.......Death
.............TAXES
.....................A... YOUR CONSTANT WHINING!!!!!!!!!!!!!!
Grab a green tea and chill!!
BTW I'm in for 10,000@3.1 and am looking forward to watching the FCC and CCU have their censoring, fascist faces rubbed in it over the coming years. Also, for those unaccustomed to seeing details of executive offerings I suggest you look at the $12m cash retention bonuses that Lucent have to executives as their stock went from $80 - $1 in 2002, never mind the games being played with options. It is nothing new and absolutely not the fault of SIRI that the market allows all companies to get away with it. Where are all the whiners on the rest of the executives getting comps????
Blaming others that provide free information regarding a stock is stupid.
Give the company a chance to try and pull itself out of this mess.
What did you think the companies merging was immediately going to send the stock soaring. If that is the case then you shouldn't be buying stocks on your own. Look at all the articals that have been trashing SatRad!!! You didn't see any of those. Be accountable for your actions and stop blaming others.
I Just bought another 6000 shares. If I lose, then I have no one to blame but myself.
[This comment has been edited to remove abusive language. -SA editors]
When it came time for the big jump I seem to remember people saying . . . hey! what's this!? Where's the motorcyle? Who said anything about a rocketship with a parachute? (expletives deleted of course).
I guess it's all in the details, huh? . . . so, when Sirius XM reports earnings tomorrow will investors (a.k.a. "Unsecured Creditors") get the same old tired scripted speech about $400mm synergies, 20mm subscribers, free cashflow 09 or will there be constructive guidance in well articulated, unambiguous, detail? Not the usual cough-cough and hand-over-mouth, "um-uh, then there's this little satellite we have to launch in 09 but that's just a capital expenditure . ."
I ask you . . . will Uncle Mel be delivering the earnings report from a motorcyle or a rocketship? . . .hmmmm
YOU MUST Analyze company numbers, Management Background, Future Projections. This is your homework.
There have been many Pros and cons regarding this stock.
It your responsibility to verify the facts of information being given.
Many writers have said SELL SELL SELL. and gave plenty of reasons why.
All of us are happy to read that there is light at the end of the tunnel but it should not be noted as the reason that one holds onto a stock. Do your homework
Your comment on the Tech is dead on...The end of subsidized radios will be at hand. Then the numbers will show a marked difference on the P/L statement. This company is not an Enron.. The subsidized radio numbers, the launching costs of satellites, and the Debt costs are items that are going to go down or dissappear. The Subscriber numbers do have a ceiling, but not for a while. As of 2006 there were 250 Million vehicles on the road (www.bts.gov/publicatio...). Currently the subscription count is at 19 Million. That is less than 1/10th the Vehicle population. Taking the entertainment factor into account. US homes account for 58.4% subscription services in all american homes in 2006 (en.wikipedia.org/wiki/...). A conservative approach of half of that percentage for autos would be 29.2%. So, a growth to 75 million, is not out of the question. I can continue to crunch the numbers for others on the forum... but that would be insulting their intelligence. Suffice to say .... I'm next to you on the short bus!!!
[This comment has been edited for abusive language and the user banned from posting. - SA Editors]
Anyone think MK is planning on turning the "synergies" win, into a triple win? By that I mean:
1) $400M = WIN (everyone knows and expects this)
2) $400M+ = WIN (boost synergy numbers during conference call)
3) $400M++ = WIN (actual results next year)
Seriously though, I say not much change in either direction. I think people are just going to sit and stare like bewildered dogs watching a beam of light on a wall.
My take on it is that we were victims of groupthink. Voices of dissent and different opinions were frowned upon and accused of being misleading and deceptive shorts. The bottom line is: they were right in the short-term, whether or not they engineered the outcome. Long-term, I think we win the war.
Remember, if God didn't exist, man would have to invent him.
[This comment has been edited and the user has been banned from further posting.-SA Editors]
And there is one more thing: For anybody who does own shares in SiriusXM, consider those as a long-term CD account: Hands off -- no buy, no sell. With my measly amount of held shares, I figure that if SiriusXM survives, there is no reason not to believe that in the next several years, they will trade as they did in the past at $50 to $60. If and when that occurs, I'll cash in and happily graduate from smelly cheeseburger meals from McDonald's to more healthy steak and lobster dinner houses where the average cost is about $500 a plate.
Forget target prices of $5, $6, $8 a share: If they reach that price, sky's the limit -- got to think big....
Scot's Slant
There is little to no upside for this stock. The convertibles pay 6% to holders right now, with nearly 1:1 upside participation in the unlikely event that the stock outperforms. There is simply no appeal to owning the equity shares of this company, as they have a relatively unfavorable risk-reward profile.
You'll make more money with Vanguard's Total Stock Market Index Fund (VTSMX). Let's say you purchased $5,000 each of Sirius Satellite Radio and Vanguard's Total Stock Market Index Fund three years ago today, August 6, 2005.
Your $5,000 in Sirius today would be worth $1,072 today, a decline of 80% in value. Sirius was $6.76/share on that date. Transaction costs would make your loss even more painful.
Your $5,000 in VTSMX, a passively managed, well-diversified index fund with a low expense ratio, would be worth more than $5,600, a holding period gain of 13%, dividends included.
You would be $4,500 richer today if you had bought VTSMX three years ago than Sirius.
Factor in the potential dilution from stock options, and even if the company eventually becomes profitable, the only investors who will make money will be the bondholders. This is a fixed-income play. No wonder the institutional money is avoiding this stock.
Individual investors such as yourselves who are breathlessly waiting by the fireplace for Santa Sirius to come shimmying down with a shiny capital gain in his bag are in for a disappointment.
If professional buyside portfolio managers won't invest their clients' money in the shares of this unprofitable and risky company, why should you invest your own?
!TYLER YOURE A SHAM, A SCAM, AN INCONGRUOUS HAPLESS EXCUSE FOR A FINANCIAL WRITER...OWE UP TO YOUR UNINTELLIGIBLE, STUPID POSITS WHICH HAVE SENT US ALL REELING YOU BLOODY BSATARD!!! 80% LOSSES OVER 2 YEARS YOU HIDEOUS DOG!!!! THE DOWNTRENDING CHART SHOULD HAVE SERVED AS A BAROMETER OF STREET/PROFESSIONAL MONEY MANAGER SENTIMENT...YOU SCUM OF THE EARTH; HELL HAS OPENED UP AND SWALLOWED YOU WHOLE!!!!
That's curious when it's common practice where analyst's--as he holds himself to be -- generally agree that to maintain a professional standard of legitimacy, there is always a declaration as to whether they hold stock in those companies where analysis is offered....
By the way, there is one more thing: Killer, whomever you are, you kill me. I smell poop? That's the best post I've read since this merger mess began: Short, sweet, simple, direct, to-the-point: That one will keep me laughing through the rest of the day....
Scot's Slant
quicksilver, I agree that it is important to look at all sides of the question regarding a companies potential stock price performance, marketing, revenue streams, management, balance sheet and whatever metrics that may be used to evaluate an industry and companies competing within it. VicDave has not done that. He does not discuss the company. He simply states that you and the rest of us are wasting are money by investing in this company. To What End, I have asked. VicDave does not respond.
verySERIOUS, nice new name you have, but you yourself have looked at the options, why blame Tyler for your own mistakes. Tyler has never expected a pop after the merger or a short squeeze to drive the stock up. This was before the refinancing the day before the merge, which took everyone by surprise. Look at Jim Cramer and his "Judas" play on this stock. It is a speculative stock investment that can lose you all of your money. Having said that I don't see any way it will. If I'm wrong I lose my money. To bad so sad. Big risks get big returns. Put your money in a CD and you'll do better than VicDave's Vanguard index fund.
Is your website down...I have been getting the white page since about 3PM?
I do not have a long or short position in Sirius. I have no position, and never had a position. I do not plan to take a position. If I ever invest in this company, I would buy the convertible bonds. They have a much more favorable risk-reward profile than the common equity shares.
The Vicar does not work for Vanguard. However, he does own VTSMX and its corresponding exchange-traded fund VTI. Being indexes, both are convenient benchmarks for evaluating the performance of other equity investments. The Vicar did so here to highlight the fact that a "boring" mutual fund better serves the individual investor's goals than speculative companies driven by media hype, with no track record of profitability.
The Vicar discusses these companies thoroughly, as he is quite familiar with them, but he is selective regarding the level of granularity he applies when discussing company details. He does employ quantitative metrics to strengthen his arguments when and where appropriate.
Additional questions?
-The Vicar of Value
Now the question: You said if $5,000 were placed in VTSMX 3 years ago, it would be worth $5,600 today. In addition, you also said that had investors placed their funds in VTSMX, they would be $4,500 richer today. So in doing the math on those numbers, it would appear that the gain is only $600, not $4,500. So have I missed something or has my calculator suffered a battery meltdown?
And no, this evening, I don't have one more thing: It's way past bedtime and I have not yet had my popcorn.
Even what Wall Street considers Blue Chip companies can lose large percentages of their publicly traded value. Look at a company like AIG to see an example of a company carried by Mutual Funds with "low risk" to see what I'm mean. ($64.00 down to $25.50, 60% loss in a year) Mutual Fund diversification protects the total loss from being felt by the investor, but not completely. Everyone here that invests in individual stocks should be aware of the risks. All the bitching and blaming everyone else for losses is, as my compatriots have already said above, whining and crying, showing a complete lack of being self responsible for where you put your money. Shame on YOU! So for your losses....Learn and stop blaming everyone else.
Scot's Slant, I defer to cos1000's most recent reply. He has articulately explained the analysis in a balanced and fair presentation.
However, cos1000 adds a hypothetical scenario that suggests SIRI could achieve $7.50 per share in 2010. His assertion that this would generate a favorable return depends on the stock actually reaching that level, which i don't see given the tremendous potential dilution from stock options and additional shares being issued, even if it becomes profitable. The precedent for this occurring is already proven and substantial.
His contention of a return that outperforms the market in this case depends on where an investor bought the stock. If the investor bought today at current levels, and if the stock reached $7.50 on August 6, 2010, that would generate a geometric average annual return of 123%. [((7.5/1.5)^.5)-1]
However, if the investor purchased SIRI in August, 2005 at $6.76 per share, selling shares at that cost basis for $7.50 in 2010 would generate a holding period return of only 11% over 5 years, or a geometric average return of just 2% annually. In that case, you're better off with the 5 year CD he described, or a government bond.
Achieving market outperformance involves luck and timing as well as insight and a discerning mind. Achieving market outperformance involves choosing your buy and your sell points carefully. Few investors get this exactly right, and if they do, it's usually by chance.
When calculating total returns, you must consider all your buy-points in your adjusted cost basis.
When the slot machine pays out $500, the player brags to his or her friends that they "won $500" and they're "$500 richer." However, their giddiness fosters selective perception, or omission bias. They fail to account for the money they paid into the slot machine to achieve that jackpot. If they win $500, but put $250 worth of quarters over a three hour period prior to hitting the jackpot, then their real "winnings" amount to just $250, still good but not quite as impressive as $500.
Consequently, they fail to sell. They get greedy and succumb to the illusion that the stock will continue to go up forever. When it crashes back to earth, they capitulate and sell -- often at a loss -- full of anger, regret, and self-pity.
I've seen this happen repeatedly. Even if SIRI spikes above $3 again (and if it does it will be by definition overvalued) most of you won't sell, because you'll fall for this fallacy. ("I'll wait until it hits at least $4" - because by anchoring yourself to your overvalued buy price, rather than to the real drivers of the stock's value - you are setting yourself up for failure.)
This is why individual investors rarely make it big on speculative stocks. Even when they get lucky, they let greed take it away.
as of March 31, 2008.
VANGUARD GROUP, INC. (THE) 40,432,184 shrs $115,636,046
and....When I looked at the major Mutual Funds Invested, I found that VicDave is indeed invested in Sirius, even if indirectly:
VANGUARD TTL STK MRKT INDX FND 9,922,742 shrs $28,379,042
VANGUARD EXTNDD MRKT INDX FND 7,004,571 shrs $20,033,073
VANGUARD GRWTH INDX FND 3,408,268 shrs $ 9,747,646
As I said above, mutual funds do cushion the blow when individual stocks fail to perform, VTI contains BAC with a 52 week range of about $53 down to $18.50 and back to its current price of 31.75. Even with this volatility the VTI is only down (11.75 %) YTD. In 2001 and 2002 the VTI lost (22%) and (13%) while some of the underlying equities made money. My point is that Investing in Sirius XM is "stock picking", some you will lose on and some you will win. We can discuss numbers and make them bend to our will or we can invest in companies that we have done our home work on and buy when the opportunity presents itself, and definitely Sell when we're making money.
Sirius Satellite Radio Inc (SIRI) holdings reduced by Vanguard Group Inc
By: RACHEL STONE Approving Editor: RICHARD JACKSON
LONG BEACH (Mffais.com) - Vanguard Group Inc sold -40,355,887 (-99.81 %) of
their shares in Sirius Satellite Radio Inc (SIRI), bringing their current
holdings to 76,297 shares as shown by filings made public on 2008-08-05.
The stock is currently owned by 312 funds/institutions with a total activity
score of 0.01. With 38.73 % of owning funds reported recently buying shares,
22.18 % maintaining existing share level and 39.08 % selling shares.
On Aug 07 03:07 PM cos1000 wrote:
> I found it interesting that when reviewing major institutional investors
> in Sirius XM that Vanguard was one of the major investors.
> as of March 31, 2008.
>