By Demian Russian
Following Sirius XM Radio’s (NASDAQ:SIRI) reported Q3 results, Maxim Group senior media analyst John Tinker reiterated his BUY rating and raised his price target from $1.40 to $1.80 (see earnings report here and earnings call transcript here). Pointing to the fact that the Satellite Radio provider was continuing to trade at a discount to Netflix (NASDAQ:NFLX), which is currently trading at about 26.4x 2010 and 20.6x 2011 EV, and that “mature media companies” are only growing EBITDA in the single digit range, he said, “SIRI should trade at a premium due to its long-term 24% EBTIDA growth rate, which implies an EBITDA PEG of 0.8x.” Tinker’s upgraded $1.80 price target is based on 18x estimated 2011 EV, which equates to a 2011 EBITDA PEG of 1.0x, compared to a group PEG of 0.9x. He also updated his DCF analysis, using a 12% discount rate with an implied terminal multiple of 11.2x and 3% perpetual growth rate, which yields a 12-month fair value of $1.81.
Tinker raised his full-year 2010 adjusted EBITDA estimate to $628 million, compared to the company’s guidance for $600 million, noting that Sirius XM’s EBITDA has grown 39% in the first three quarters of this year. He is estimating Q4 EBITDA of $146 million, which surpasses the company’s forecast for $118 million. Tinker’s full-year 2010 EBITDA estimate equates to a 27% year-over-year improvement, in contrast to the company’s 11% forecast. He also raised his 2011 EBITDA estimate from $715 million to $740 million, and his 2012 EBITDA estimate from $908 million to $940 million. In light of Sirius XM’s growing EBITDA and the company’s recent refinancing moves, resulting in lower interest costs, Tinker also raised his FCF forecasts for 2010, 2011, and 2012 to $176 million, $379 million, and $724 million respectively. He sees free cash flow growing 115% in 2011 and 91% in 2012.
