People, I have no vested interest in the stock. In fact, I do not short stocks...ever. If I had, it would be mentioned in the disclosures. This article is in response to a request made by one of my followers who was interested in the company. I have never had interest in the firm and have therefore not analyzed it in the past. I do not expect everyone to accept the results of my analysis. If you think that SIRI is undervalued, then by all means go ahead and buy the stock or hold on to it.
If I was really after page views, I would have written a bullish article on SIRI, not a "short" one. A few page views do not make a material difference to me.
Homer985, thanks for your thoughtful points. I have indirectly accounted for the the NOL and all other assets of the company. This is earnings based relative valuation. The EPS and the growth rates take care of the NOL, deferred revenues etc. I was performing an absolute analysis, then I would have explicitly considered these points.
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I am more concerned about the rapid increase in share price. I think that the fundamentals do warrant and support the current price. But when was the market rational? I would also wait to buy stock. A decent pullback would be welcome.
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Thanks for adding me to that list. But if you notice, I was actually looking at his long picks as I almost always am a buyer of equities, not a short seller.
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To be clear, i do think that the deal with go through and will reduce costs for ESRX thereby potentially improving the return potential of ESRX stock. I will however wait to see the completion of the deal and the impact on earnings before revising the growth estimates for ESRX.
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TonyFu, thanks. My analysis actually assumes a failed merger. In the short term the stocks might take a hit if the merger fails, but in the long term, the two firms (individually or combined) have great prospects.
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I agree completely with you. Its not an apples to apples comparison. The only reason for me to compare them is that I would probably not be looking to own more than 1 company from the industry and I was looking for the strongest company in the industry.
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Thank you for your comment. FDX's capital lease commitments for next 5 years total $165 million. You are right, I should have (and in the past) considered that as part of debt. However, since the d/e for FDX is low, the addition of $165 million does not have a material impact. Therefore, I did not add it while performing my analysis. For curiosity, I changed the d/e ratio to include the capital lease obligations, the d/e ratio increased to 11% and the fair valued decreased by $1 to $118. Although I agree that CAPM model has various shortcomings, in this case, I do feel that FDX and UPS should not have the same discount rate. As a person who prefers firms with very low levels of debt, I see FDX having a decisive advantage in this area and I would personally not be using the same discount rate. Of course, this is my personal opinion and I would totally understand it if you were to use the same cost of equity for both the firms.
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The EPS estimates are calendar year 2012 estimates. They are not financial year estimates. The data was sourced from Yahoo Finance, Morningstar and S&P Equity Research. The numbers are a combination of consensus and my projected year over year growth rates.
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If I was really after page views, I would have written a bullish article on SIRI, not a "short" one. A few page views do not make a material difference to me.
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