Sirius XM Radio Analyst Roundup 117 comments
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With the Q2 2008 conference call of SIRIUS XM Radio (SIRI) complete, analysts are beginning to weigh in on the prospects of the merged company. As expected, there are both bearish and bullish outlooks, with a smattering of opinion that goes right down the middle. The merger is new, and analysts are applying differing valuations and even models as they look at the companies.
JP MORGAN
Barton Crockett of JP Morgan has given a slight upgrade to SIRIUS XM Radio. He moved his outlook from “Neutral” to “Modestly Positive” after seeing the financials for the stand-alone quarter and listening to the Tuesday conference call.
STIFEL
Stifel analyst Kit Spring had previously expressed that the pre-release of numbers by Sirius was mostly in line with their estimates. After the full release, Spring still sees a “Buy” rating on SIRIUS XM Radio with a price target of $3.00. Spring notes, “Our core reason for sticking with buys on SIRI despite the somewhat disastrous refinancing of XMSR’s debt, is that we think the stable self-pay churn (1.6%) in 2Q and OEM conversion (50% combined) statistics point to the consumer still liking the product. Especially in light of a weak consumer, increased penetration of lower-end new cars and cars with iPod/MP3 jacks. We continue to see $4.9B of present value of merger synergies with expected cost cuts on virtually every lien item.”
GOLDMAN SACHS
Goldman analyst Mark Wienkes, who has been critical of satellite radio, maintains his bearish outlook. Wienkes stated, “Sirius’ 2Q08 results offer encouraging early signs as to the potential for positive earnings down the road. Most financial metrics largely improved yoy, yet some core business metrics weakened.”
Wienkes points to consensus subscriber estimates as being too high due to rising OEM churn and weak retail demand, as well as capex needs and financing that he feels will reduce free cash flow to equity holders. The analyst also feels that a $7 billion enterprise valuation implies “flawless execution and a premium multiple even at today’s price.”
The analyst has placed a six month price target of $1.00 on SIRIUS XM Radio.
BARRINGTON
Barrington maintains an “Outperform” rating on Sirius XM Radio, citing that at current low levels, the stock looks increasingly interesting. The firm had anticipated a loss of 7 cents per share. SIRIUS XM beat Barrington's model by one cent.
RBC
RBC analyst David Bank expressed a desire for more detail and felt that for the time being, they should remain on the sidelines. Regarding the call, Bank noted, “The only real guidance SIRI has offered with respect to merger synergies is $400mm in 2009. We believe this will primarily consist of back-office, retail incentives, and advertising savings that could be realized near-term. But we’d like to see more specific line-item guidance from management on these assumptions as well as longer-term assumptions regarding content and OEM distribution savings, when, in fairness to them, they have had more of a chance to evaluate opportunities from “the inside”.
Bank carries a “Sector Perform” rating with a $2.00 price target.
CITI
Citi analyst Tony Wible is the more bullish analyst amongst the group. The analyst carries a price target of $6.50, citing that he feels guidance is conservative, “Best Of” programming will provide an ARPU boost, and that liquidity is not an issue.
More analysts will likely weigh in now, as they have had a chance to digest the numbers and evaluate their models.
Position - Long SIRI
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This article has 117 comments:
Mel Karmazin will appear on Cramer Monday 1:30 PM, I'm not an analyst but I have more brains than these guys who only see thing inside the box. My price target for the end of the next Holiday quarter is $ 3.65 IMO things will start happening after Labor day.
Mel Karmazin is a hell of a CEO, I'm sure he has a line of products coming down the pipeline not just relating to cars.
Any idea what percentage of subscribers the Company expects to subscribe to Best Of
Mel has not done anyone, any favors.
Capitulation will likely not occur until these daily pumps by Tyler are met with no replies. (or at least not 50+)
Either that or bankruptcy for true capitulation.
We shall see....
Thanks for the summary and updates.
Disclosure: Long
How much more pain one can take in this one?
Why would GS and others have to lower the price some more if it's already so low?
If shares of Siri will rise lets say up to $10 or 20, can't they still buy at 2 or 3 dollars a share and still make a killing?
Why drag it down so low?
To make off with a large amount of money within two or three months, because he knows the stock will not stay this low. I agree the stock is already low, but why not sink it more and sell in two or three months when he/they strike a 200% gain. Just my opinion.
1. They do not own any shares
2. They do not foresee the future and still feel the co may go bankrupt
3. They have some personal interest or enimity
4. They cannot be sued for misleading the investors if the price touches $5 after the festival season results.
cramer does no good with his flip flops either.
just don't buy or sell,hang inthere for a while longer.
Remember Buffet comments, if you believe in business model and management is good then invest otherwise sell your share.
Long SIRI.
SO LET ME GET THIS RIGHT: YOURE NOT COMPLAINING ABOUT THE AUTHORS DISMAL TRACK RECORD ON THESE STOCKS BUT WOULD RATHER LAUD HIM FOR BEING TOTALLY IGNORANT ON THE TRUE POOR FUNDAMENTALS OF THESE COMPANIES?
Aug 10 05:26 PM
All great points Tyler but SIRI is a dead stock until it can show any sign of profitability. Any investor following your articles about SIRI/XMSR for the last 2-3 years would have lost everything!
How much more pain one can take in this one? <- THANKS TO TYLER, MY ENTIRE INVESTMENT IN THIS STOCK IS SHOT TO HELL AND YOU SPEAK THE TRUTH WHICH I COMMEND YOU FOR AND ANYONE WHO SAYS OTHERWISE, IS AN APOLOGIST FOR TYLER AND HIS POORLY-RESEARCHED WRITINGS WHICH HAVE DEBILITATED US TO AN ALMOST 90% LOSS ON THESE STOCKS
how about ""Richard Cranium" can you figure that out EuroTrash?
GS $1.00 (6 months)
JP Morgan $1.32 +
Barrington $1.32 +
RBC $2.00
Stifel $3.00
Citi $6.50
With the shroud of future prospects still cloudy, the individual performance information was the only measure.
If you look at the 200 day moving average, it somewhat mirrors the average of the above analyst numbers(2.52+).
The only way these numbers will change, is with solid information, or investor sentiment.
Next while I have disagreed with a few of Tylers articles, were has he given you a price target or told you to buy this stock. What was the article that told you to buy. All his articles are there so go find it, then come back and show me. Until then shut your hole, because something tells me you will not find it. I need to see proof of where Tyler said to buy either stock. I know I have never seen that, over the last year and a half.
euro9908, I now in Europe they dont blame themselves for mistakes that they make. Here most think, there is only one person to blame for there mistakes that is themselves. I dont think buying SIRI was the mistake, selling would be though. So if you made that mistake you only have yourself to blame. You are not a smart investor, because smart investors dont buy high and sell low (if you have not sold then why are you so pissed, you have lost NOTHING yet). I have gone over the improving metrics and how well the company is set for the future to many times already and will not do it again. I am sick of showing people like you time and time again things you should be able to see for yourself. If you cant get a grasp of how good the future of this company is. You should get out and sell already, if that is the way you feel. I say good bye and good riddance. Then again you will be blaming all the analyst like Mark W. in 2 years for how wrong he was to. Make up your own mind, look at the metrics yourself.
You know it is only a matter of time before the Wienkes effect kicks-in. Then maybe you guys can get a job with Tyler over at Best-Buy or Circuit City. Maybe me and VicDave will stop in and say "we're just looking."
www.cnbc.com/id/158402...
Tyler rules!
Eurotrash = RIchard Cranium
What is your sell price? At what price point will this stock be overvalued? Take some responsibility. Mr. Savery is not to blame for your own greed and poor decision-making.
Mel K. is clearly on the defensive. The CEO of a major media company needs Cramer's show as a soapbox to justify the share dilution, the sagging stock price, and the lack of institutional interest in the stock of his money-losing company. He admitted to compromising the equity holders by issuing the convertibles - a move that eliminated what little appeal the common shares had left.
Basically, Mel's appearance was a mea culpa. The common shares are in trouble. This appearance on Cramer's show? Smoke and mirrors for gullible individual shareholders. If he had anything redeeming to say to the instititional money that drives all stocks now, we would have heard it on the conference call.
Then also, perhaps explain to all the brethren the technical aspects of the arbitrage play on the converts . . .
Thank you.
P.S. Good thing Cramer was only a half-hour show today. Mel's fousome is waiting for him down at Deal Country Club . . . don't wanna keep that helicopter idling too long.
The good news is that your admission liberates you to sell your position and buy an index fund. You'll make more money than the stubborn longs who continue to deny their mistake. They are prisoners of their own risk aversion.
On Aug 11 03:57 PM killerkaul wrote:
> Well boys..................... siri stock up .15 near the close.....not
> a bad start. Run Blue Dog Run!
XM had about $1.5 billion in puttable debt — which means, if XM changes control, the debt holder could force the company to buy back the debt. So XM had to refinance almost all of their debt…
Incedentally, Karmazin had nothing to do with the refinancing, as the companies had to sign confidentiality agreements to keep each others “business” and “finances” away from each other until after the merger is consumated. So while Mel was probably aware of what XM was doing — he was not the facilitator, as that would be against the law.
First, XM offered an increase in the interest coupon on their $400 million in 1.75% convertible notes that mature in December 2009 — up to 10%. Those holders agreed, so XM changed the indenture on these notes.
—–
Second, XM offered to repurchase $400 million of their $600 million in 9.75% Senior Notes with cash… and issue a “new” exchange note for the final $200 million, which would have an identical coupon of 9.75%.
To come up with the $400 million in cash, XM did a new debt offering. There was one stipulation — and that was, if this new note offering exceeded the $400 million, then every dollar higher had to be used to repurchase the remaining 9.75% notes. We since learned that this debt offering went really well — and was “oversold” all the way up to $700 million. So XM had to use $600 million of it to buy back all of the $600 million in 9.75% Senior Notes. The problem here was that the coupon on these was run up to 13%… ouch. But these are tough times… so instead of $600 million at 9.75%, they now have $700 million at 13%.
There was no interest rate at 15% or 16%. That was a misunderstanding by many who mistook the discussion of the Yield to Mature, as the interest rate. The YTM will almost always be higher than the interest rate. In fact, the new Senior notes above have a coupon of 13% and a YTM of 16%.
—–
Third, XM put together their final piece of refinancing — by issuing $550 million worth of new exchangeable notes (aka, convertible notes). Problem here, is that most buyers of convertible notes are Hedge Funds — who short the common stock agains the purchase of the convertible debt, in an arbitrage investment play… but Sirius is on the REG SHO list and has no shares available to short. So XM got Sirius involved, to “lend out” up to $440 million worth of their shares to the Hedge Funds, so that they can short the common against their Debt purchase. Without Sirius lending out these shares, the interest in buying this debt would drop greatly — and cause XM to lower the conversion price and increase the interest rate offer on them.
So today we learn that they priced the conversion price of the convertible debt at $1.875/share; and priced the offering price of the loaned out shares to be sold at $1.50. This combination allowed XM to get an interest rate of 7% on this new $550 million in debt.
This $550 million will be combined with the remaining $100 million from the other debt placement — and used to buy back the $200 million in Floating Rate debt; and $310 million that is owed on the Transponders of XM-4, which were sold last year in the leaseback agreement.
This leaves XM with $140 million remaining — which I believe XM is using to replenish the $120 million in cash that XM used to deposit in their MLB escrow account.
All money raised in these two offerings has now been used to refinance/buy back older debt.
As to the second question:
"Then also, perhaps explain to all the brethren the technical aspects of the arbitrage play on the converts."
I know cos1000 already explained it. So I will not waste anymore time trying to find it, or retype it, so go look it up yourself or you could just take a look at the Mad Money clip with Mel it gets into it.
Why was the offering over-subscribed??
Also, I am unable to locate cos1000's breakdown of the arbitrage play (a.k.a. death spiral financing) and the Cramer segment touched on it only briefly and not in the kind of detail that the common shareholders deserve . . . essentially, Mel saying it was "the best deal available" under the circumstances but not laying-out the details . . .
Given your strong "hold" recommendation, I am curious as to your forward EPS estimate for 2009, the forward growth rate, the corresponding multiple that should be applied and how the reflected share price will correlate to the convertible debenture . . . for purposes of this discussion, we'll exclude capex for the '09 satellite launch.
Appreciate your thoughts . . .
SIRI: BIG DILUTION FROM STK OFFER: MARKET CAP EVAPORATION
Posted by Eric Savitz (This is a Barrons Tech Trader article)
It’s game over for stockholders. 17% dilution in a single day, and possibly more to come. Combine with the price caps, the incredible debt service costs, and the fact that profits are still years away….is there any reason to own this stock anymore? Those who hold it now are delusional. Forget the analysts and bloggers - just read the financials, do the math yourself, sell your shares, and buy an index fund. You’ll make more money.
Comment by Vicar of Value - July 29, 2008 at 3:10 pm
I assume we are limiting the discussion in this forum to "long" or "short" Sirius XM. As you are aware, Discounted Cash Flow analysis is an extremely speculative methodology. Subtle changes to the input assumptions can and do produce widely varying results (discount rate, growth rate, treatment of capex etc). This is proven by the widely varying recommendations of the analysts who basically use the same "canned" DCF software but arrive at price targets ranging from $1.00 to $6.00
Please refer to my open questions to 163888 and the effect thereupon of refinancing the debt as mentioned by 163888.
Thank you.
On Aug 11 05:39 PM cos1000 wrote:
> Sirius Roadkill, as I said your just another idiot asking questions
> but providing nothing in return. Why don't you enlighten everyone
> here with your measured thoughts and future predictions and don't
> forget to provide all of your DCF assumptions for all their worth
> at this time. And as Scott's Slant asked the VicDAVE, how about some
> alternative investment ideas. Spare me the ETF's, Spyders, and Mutual
> Funds, this is a stock picking site. Maybe you would like to share
> some of your 5 star ideas.
like.www.nypost.com/seven/0...
*Wienkes wants sustained cost constraint as shown by Sirius in 2Q08;
Sirius and XM as separate companies have been demonstrating constraint in costs for quite some time now. This is nothing new to these equities. Cash burn has slowed, and costs of gaining subscribers has been improving. How much more "sustained" does Wienkes want?
With a merged company, it is obvious that the business will scale in certain ares in a short time frame. Marketing is perhaps the most obvious, but other items will show savings as well. Sales teams that work with retailers. Shelf space, and advertising will all show savings right out of the box.
Anyone can go through the last year of quarterly reports for both companies and witness evidence of cost cutting for themselves. I find it curious that Wienkes mentions this knowing full well that the companies have not only been cutting costs as stand alones, but will be even more efficient at it as a merged entity.
*Weinkes wants more tangible visibility into the OEM ramp with steady integrated conversion rates and stable churn;
Again, where is Wienkes coming from? Has he looked at the gross OEM numbers over the past few years? Has he visited dealer lots and seen all of the SDARS equipped cars? Tangible visibility into the OEM Ram Up? What do you call record installations DESPITE a slow 12% down in vehicle sales? How much more tangible can it get? Didn't Wienkes see the JD power survey on 2008 model year penetration at 55%, up from 39% in the 2007 model year? That is a 41% jump!!!! Isn't that tangible?
Steady integrated conversion rates? Again, where is Wienkes coming from? XM's penetration rate was 53% up from 50% just a couple of quarters ago. XM has been between 50% and 55% for YEARS! Sirius announced 48% and guided higher. The company guided to 50% as a combined entity. Does Wienkes think that because the companies merged that things will change dramatically to the down side? Does he feel that having lower price point options for consumers will make the conversion rate go down? This baffles me.
Stable Churn? I hate to say it again, but what is Wienkes thinking? Churn has been stable. Self pay churn has typically been between 1.6% and 1.8% for quite some time now. How much more stable does it get? In his note, Wienkes cited that fully loaded churn for Sirius was at 2.8%, up from 2.1% a year ago. WHERE HAS THIS GUY BEEN? anyone who follows the sector is well aware that the OEM channel in Sirius had a substantial ramp up of 1 year subscriptions that at some point had to turn into some churn. The jump was reflected in Q3 of last year and has been pretty stable ever since. Doesn't Wienkes comprehend that an initial ramp up would boost sub numbers when it happened, and then boost churn when the promotional period ended? Perhaps the lack of understanding of the take rate is simply translating to a lack of understanding on the churn rate.
This whole point by Wienkes is shocking. It is almost as if he is a couple of years behind on the learning curve with respect to how the OEM channel works, and how churn is calculated.
__________________
Tyler Savery
Satellite Standard Founder
*Wienkes wants positive or stable and sustained ARPU momentum;
I don't know where to start here. First of all, ARPU has been stable with both companies for quite some time. From time to time their are impacts to the line item, but typically they are one time events.
What is baffling is that the ARPU model will shift with a merged company. Not because they merged, but because there are now more pricing options. What is better, 70 subscribers paying $8 or 50 subscribers paying $10? Did Wienkes even stop to think that the ARPU line stands for average revenue per user, and that having a lower ARPU combined with deeper consumer demand can be better than a higher ARPU with less demand?
How long does Wienkes need to determine stability? One quarter, or twenty? Given that he is looking for stability in churn when it has been stable for YEARS makes me wonder if Wienkes will ever see stability!
*Wienkes wants improving retail sales;
We all do. However, most people noticed a shift to OEM some time ago. Retail sales were important in the beginning because satellite radios were not available in cars. Most people understood this. If your car comes with satellite radio, do you really need to install a retail radio? Isn't the point to get the subscriber whether from the OEM channel or the retail channel?
Retail sales have stabilized, and have actually been ABOVE what most analysts were expecting. By the way, why is it that Wienkes does not put his targets out there for all of these metrics? He says he wants "something", but because no one knows what his "something" is, it may well be that he will never be satisfied.
Retail is going to be a Q4 event in SDARS going forward....at least for a while. Everyone knows this, so why is this metric important to Wienkes as a standard for becoming positive?
__________________
Tyler Savery
Satellite Standard Founder
*Wienkes wants a significantly lower enterprise valuation;
Agreed. It will come in time when profits get here. As the business scales, so will the EV.
*Weinkes wants reduced risk of dilution related to cash flow and refinancing needs through 2009;
I do not see a need for dilution at this point. The company is demonstrating cost control, and revenue is GETTING TO THE BOTTOM LINE. The company is still seeing TOP LINE GROWTH, and now we are beginning to see both TOP AND BOTTOM LINE growth. This is a positive trend.
I do not see financing as a major issue going forward. The markets will improve, and the company will be demonstrating better cash flows by the time they need to address the issue.
__________________
Tyler Savery
Satellite Standard Founder
*Wienkes wants more conservative consensus financial expectations for 2008-2010.
Excuse me? You want all of your peers to adjust down to you, and then you will become more bullish? Come on now! Consensus gives the average of the opinions. That is why it is called consensus. This statement by Wienkes seems to carry an arrogance to it. Again, where is Wienkes desired goal? He does not offer it. We may know his opinion, but how much is he looking for others to cut? 10%? 30%? He is once again putting up a hoop for everyone to jump through, but also has the ability to move that hoop.
*Wienkes wants clarity on the timing and magnitude of proposed merger synergies
We all want clarity. We all know there will be synergies. We all would love to see some of the steps to realize $400 million in the first year. We also all know that when Mel Karmazin sets a goal in public, he gets there. As an analyst, you do not need Mel to hold your pencil for you. Some savings are quite obvious, others less so.
We are all frustrated with the fact that knowing exactly how things are going to happen is not going to be an option, but we will all also be happy when the company gets there.
__________________
Tyler Savery
Satellite Standard Founder
Conclusion:
People are being critical of Mel Karmazin for not giving up detail and specific timetables. Perhaps we can all be critical of Wienkes for the same thing.
Wienkes has made several GENERAL statements without letting us know what his desires are. Does this give Wienkes the ability to create a moving target? YES IT DOES.
The man is negative on SDARS, and says that is is possible for him to be positive, but gives no REAL indication of what exactly it is that will satisfy him. While other analysts point out their assumptions in various metrics, I find that information lacking in Wienkes keys to turning positive.
In the end, it is the bottom line that matters. Not Wienkes bottom line, but the bottom line of the company
__________________
Tyler Savery
Satellite Standard Founder
Reorganization will likely be the only viable outcome. Capital preservation dictates common shareholders liquidating any long positions immediately.
GS is a pretty venerable franchise. I would not want to underestimate the level of information that they might be able to obtain that other investment houses cannot.
Mel could have just answered the question, right? If anyone can do the math why wouldn't Mel just say "X" and be done with it. It was a pretty straight-forward question. Diverting Wienkes to the "Q" sends up the radar. . . is it a loaded question? Has Wienkes been spoonfed some info from higher-ups . . . we know that happens, right?
Common shareholders might reasonably wonder what Wienkes knew about the merger financing and when he knew it and what he still may know about the company's liquidity position. After watching the repeated assurances from CEO's of Countrywide, Bear Stearns, Citi, Merrill etc. it is difficult to trust coporate governance in the current environment, especially with the Sirius XM's oppressive debt service.
Wienkes is more than just a blind squirrel finding a nut . . . that we can take to the investment bank.
On Aug 11 08:02 PM 163888 wrote:
> Sirius RoadKill, Are you kidding me, Lets see here people like homer385,
> others and myself can figure out cash on hand but Mark W. cant. That
> is as bad as the comments he made about what he needs to see SIRIXM
> do before he can upgrade them. Hey why did GS hire him if he cant
> do something as simple as that.
Are you noticing a certain style of writing and argument of Sirius Roadkill's posts. I feel like its Deja Vu all over again.
cos1000, VicDave realized that I was going to keep putting up his dumb a$$ comments that prove to everyone, he has no clue of what is going on in this company and that he lies, so he took off. By the way that was a good one about the Barrons article. Once again it showed he did not know what he was talking about.
Why dont you do your own research and stop blaming others for YOUR loss.
Instead of posting, why dont you post of yourself in a dunce cap for buying on margin and blaming others.
Doesnt your trailer need to be washed?
I then watched it come down. I dipped my toe back in about 4 (since I am a believer in the product and Mel) and have been accumulting shares a little at a time. I was and am not looking for a quick pop. I love the product. I have 2 radios (including a stilletto) and another in my car.
I consider myself a long because I am in for the long haul. I felt that at 8 or 9 ( i dont remember when I got out) it was overpriced due to the hype. I have acculmulated more shares with larger amounts of money on the way down . Again, I started dipping my toe back in the water about $4. I AM NOT DUMB ENOUGH TO BUY ON MARGIN HOPING FOR A QUICK POP.
Currently, I have a big position but my cost basis is ONLY 1.85 due to my increasing my investments on the way down.
I have a sizable position, but it is in porportion to my entire portfolio. I have read Tylers articles. I love them. Due to the fact that I COMPREHEND what he is writing, I have gone slowly.Not once did I ever read a BUY recommendation in his articles. I believe that Tyler, cos1000, 163888 and done an excellent job in researching SIRI. I user them as a tool to help me make up my own decision. I DO MY OWN RES|EARCH additionally to help me make up my mind.
I would never MARGIN stock from an article or blog on the internet where I would be hoping for GOLD AROUND THE CORNER. If ever did do that, I would not blame others for my loss. Nor would I be dumb enough to admit it.
www.orbitcast.com/arch...
...seems to me that XM would not want their prospective (and exisiting) subscriber base to know about the much cheaper alternative that is going to eat them alive... (along with XM's debt, that is)...
I have a lot of friends over at xm and hope that they are safe with their on air positions. They do whateveris asked, play 2nd fiddle toa different type of shoe.
Many others are scattered throughout the station. as some are at Sirious also. One thing I read is that Melk saids all xm is going.
Anyone have any concrete info, i worked with these guys. the past is the past,but dont want to see anything happen to them
Billy
Tymp