Analysts on Sirius: Merrill, Goldman See Gloom, Barclays Sees Upside 41 comments
an article to
-
Font Size:
-
Print
- TweetThis
After what has been virtual silence in the street this week, a few investment bankers have peeked out from the bunker to offer their latest opinions on Sirius XM Radio (SIRI). Merrill, which is now part of the Bank of America (BAC) family, and Goldman (GS) have doubts about the prospects of stock performance, while Barclays (BCS), now the proud owner of Lehman Brothers, sees the stock more than doubling by year's end.
MERRILL LYNCH
Downgrade to Underperform; PO of $1.00 “We are downgrading SIRI to an Underperform with a price objective of $1.00. The recent dislocations in the credit markets have significantly increased the risk associated with upcoming refinancings, negatively impacting our estimate of the company’s cost of capital and equity value. We still like the fundamentals of the underlying business and believe there is a good chance Sirius will be able to refinance, but we think the downside risk is too great to maintain a Buy rating.”
Thus, while Cohen likes the business model, the financing is a big overhang, and until there is clarity in this aspect of the company, do not look for Cohen to adjust things to a bullish outlook. However, should the financing get taken care of, Cohen may well become bullish in a short timeframe.
GOLDMAN SACHS
Weinkes of Goldman was already a satellite radio bear, so the details of his report were not much of a surprise. The analyst took his price target down to 50 cents. Citing churn and the credit situation as the major factors, Wienkes sees still more downside and thus arrived at half a buck for his six month price target. The analysis of churn by Wienkes seems to indicate a lack of understanding of that aspect of the business, but regardless, the credit opinion is sound in that perception is bad on debt across the board.
“We continue to rate SIRI shares Sell and our price target is $0.50. We still see a viable market for satellite radio, SIRI’s niche, in our view, with a sole provider subsidizing mass market distribution and programming. Our base conclusion of overstated equity valuation relative to the expected FCF opportunity matches our prior analysis; however, the nature of our concerns has shifted toward the viability of the business model given current sub economics. That is, we believe the company will need to add roughly 8.5-9mn gross subs just to net 2mn new subs in 2009.”
BARCLAYS
Less than a week after the Barclays logo appeared on the Lehman Brothers building, the company has initiated coverage on Sirius XM Radio with a buy and a $1.80 price target, which is more than double current prices.
“Initiating coverage on SIRI with a 1:OW rating and a $1.80 YE 08E price target (driven by DCF), which represents approximately 27x 09E EBITDA of $273MM. This is a change from our previous $2.10 price tgt, due to a higher interest rate in our DCF calculation, reflecting credit market conditions. Company’s future driven by growth of auto OEM segment, combined with cost benefits from XM/Sirius merger synergies. 09E EBITDA est $273MM vs. $300MM guidance. Key near-term risk is need for refinancing of approx. $1.2BN in maturing debt in 09E”
Position - Long SIRI, No Position Investment Banks
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
Top
StockTalkers.-
1
David Fry
-
2
Cliff Wachtel
-
3
Mike Havrilla
-
4
David White
-
5
Hedged In
Top StockTalkers » -
1
Yeah, I can't remember where, but remember learning that the "average" investor couldn't get into those even if they wanted to. Maybe you even mentioned it a while back. Thanks...
The Explanation was also included in Sirius' 10-Q, filed on 8-11-2008, and can be found on p. 24 under Notes to Unaudited Consolidated Financial Statement: section, XM Indebtedness, paragraph titled: 7% Exchangeable Senior Subordinated Notes and paragraph titled: Share Lending Agreement.
As far as GS, I am convinced that the details of the 7% Note sale will reveal their investment is high, giving them a bunch of shares to play with, and the useless paper they own, represented by the 2-1/2% Feb, 09 converts, are all the reason that GS needs to short this stock.
The Feb, 09 converts are valued at $127M to GS and are fully paid for (final interest payment in Aug. 08). The convert price around $4.47 means GS won't convert so shorting is all there is left to do with new shares lent in the 7/31, 11th hour deal (speculation as already discussed). The Feb. 09 converts had hedged shares that will be covered and returned to the company (no dilution). Keeping the stock price down while trying to force the company to offer new converts in Feb is GS' only means to make a buck and hang tough.
I'll chime in on your price question...first for obvious reasons of having an agenda and for just plain being evil, I'm not giving GS any cred, so their .50 price means nothing to me. Nor Merrill, who is really a ghost because they were one day away from ruin and were only saved by a company that paid way too much for them and should have waited for failure, then come in at pennies and buy 'em up (ala Barclays with Lehman)...so Merrill = no cred either. I would have loved to see them fail.
Up until last week, I believed the bottom to be in @ .68--which was intraday. Otherwise, they've shown solid support in the .80's last few weeks. I want to see what happens tomorrow and Tues. I think if they hold here this week, in the face of these new bogus reports, I think the bottom is still valid.
One thing that worries me a little (just in that they could break the .68 level briefly, nothing major), is my looking back at the last time they went through this trying to "convince people otherwise" phase. They did for a brief time fall into the mid .40's, right before they started heading up for good. Of course this is a different time for the company and they have a much more established gig. But as said, I think this will be a good week to see what kind of strength the stock has at this level. If they are up the next day and two, I think short of a quick intraday swing down here or there, they have bottomed.
Here's a suggestion to think about. Right here at these levels, if I was intent on putting new money to work in SIRI, I would do the following. See what the next few days brings. If there's a hold, wait for an attractive intraday entry during a dive and use 50 or 65% of your cash there. Then keep the other 50 or 35% dry for a few weeks in case something happens to the downside...if not, just wait for the next pull-back for that second half. Trying to buy in at the EXACT bottom as you know is next impossible. Anywhere in here between .50 - .80 = the big picture bottom. Food for thought.
So as suspected, it was filed AFTER the new deal hit the street @ $1.50 on 7/29. The devil is ALWAYS in the details!...it's too bad that's the route SIRI had to go (the bad deal in general). But had it not, I most likely wouldn't have been hanging out here with you guys--which has been cool...
1. The article simply represents that some analysts have come out with opinions. When this happens, I cover it.
2. I try to outline the basics of what an analyst is saying without interjection of my own opinion. If I have a strong opinion about a report, I sometimes dig deeper into it in a separate article. I feel this allows readers to see an analysts opinion without my own opinion clouding the issue.
3. I feel it is important to see this, or any investment, from many perspectives without the rose colored, or gloomy gray glasses on.
Simply stated, articles such as this are merely to inform readers what opinions are out there. The fact that one analyst has more or less credibility than another is a matter of opinion. Even if i disagree with an analyst, or Jim Cramer for that matter, I still want to know what they are saying.
Cheers
If you should happen to read this and respectfully speaking...
First, I was pretty outraged yesterday by reading your and Brandon's articles as they both seemed to me be unfair to SIRI by putting the negative opinions of two non-credible institutions in headlines.
You say: >>The fact that one analyst has more or less credibility than another is a matter of opinion<<. But I think that should be examined.
Merrill Lynch is by all rights a failed institution. SIRI has not failed, but Merrill did (or were hours from it until BAC came riding in), yet they are given a headline of their opinion about SIRI's viability? As if they have the right to be opining at this point...I just don't get it. And Goldman, who is now just a 'regular bank' and no longer in the investment banking business (their quick escape from ruin), and who also is/was involved with SIRI financing, are they the right company to also get a headline? My answer to both is no.
From a journalistic perspective, I believe yes, you want to report the news, and it is fair to report both sides, but so is HOW it is all reported important. The way in which you constructed both your headline (negative news first) and the body (negative opinions first, positive at the very bottom), I think you would get few expert opinions that your article was not spun negatively--whether you intended to do it or not. On the issue of using credible sources, that may be as you say 'a matter of opinion'. But again, from a jounalistic perspective, do you really believe Merrill and Goldman (given their current status, improprieties, etc..) are credible to be opining on SIRI? What I see, is these are the only two overly negative opinions out there, so you felt compelled to use them regardless of their own internal failures. And what was worse, you basically made the article all about them (2 negative opinions to 1 'oh and by the way' positive in Barclays). If anything, and one HAD to put their (Goldman/Merrill) opinions in, they BOTH TOGETHER should have occupied the bottom third of the page (as an 'oh by the way') due to at least their lack of cred.
I'm just confused by your choices here Tyler. Why 2 neg views to 1 pos? If you're objective was fairness, why not 2 and 2? Why the neg spin on the headline and article itself through its construction? If you have time, I'd enjoy hearing your input.
We gave time that no one could afford to pay us as advocates for the merger-----doing research on the nefarious characters working to stop the merger.
Everyone here knows the 2 year story.
It is reprehensible and perhaps even criminal what Goldman and Wienkes did to this company.
Now they come out with recommendations to allow them to do what ever it is they will do with Sirius now a penny stock.
Pox on their houses.
There were three reports issued. Sometimes it is not possible to "balance" two bad with two good. It simply was a fact of timing.
Your opinion that putting the two negatives first could be countered by someone saying that the positive report first is getting buried by two negative reports.
The headline was simply a synopsis of what the reports were.
Today, CITI issued a report. There have not been others as yet. The headline is positive, and the analyst report is positive. Certainly that will have some people saying that I am "pumping" the stock when in fact I am simply reporting the release of another report. As yet, S.A. has not picked that article up, but it is on my site. If this afternoon a negative report comes out, I will report on that as well.
Thank you for your readership, and I hope you can understand why the articles are the way they are.
Thanks for the response. I caught your CITI article today--thanks for that. I only wish you would have been able to have all 4 in one article. But it is what it is. Peace...
you're bottom feeding now at these levels so who knows it could dance a little lower...keep a steady trigger finger!