Lehman Issues Updates On Sirius and XM
Vijay Jayant, and analyst for Lehman has updated models for both Sirius and XM. The updates are derived from analysis of the respective companies recently reported earnings and SEC filings.
Lehman carries a $19 price target on XM Satellite Radio and a $4.90 price target on Sirius. Both companies are working towards a merger. Lehman uses stand alone models.
SIRIUS UPDATE REPORT EXCERPTS:
Change of Earnings Forecast
Updating Model
Investment Conclusion Updating estimates, now expect slightly lower net adds, smaller cash flow losses due to lower marketing spend in 2008. Company’s future increasingly driven by auto OEM business, while retail business continues to decline. Believe investor focus remains on merger approval prospects. Continue to expect standalone positive FCF in 2009E.
Summary Key 1Q08E forecasts: 489k net adds, 1.1MM gross adds, 2.4% churn, $10.22 ARPU, $97 SAC, $128 CPGA, $278MM revenue, $(81)MM EBITDA loss, $(130)MM FCF loss. Key 2008E forecasts: 1.95MM net adds, 4.6MM gross adds, 2.4% churn, $10.57 ARPU (assumes price increase in 2H07 if company remains standalone), $94 SAC, $132 CPGA, $1.26BN revenue, $(188)MM EBITDA loss, $(267)MM FCF loss.
ADDITIONAL DETAIL FOR MEMBERS IN SIRIUS BUZZ STOCK FORUM
XM UPDATE REPORT EXCERPTS
Change of Earnings Forecast
Updating Ests, Focus Still on M&A
Investment Conclusion Updating model for 4Q07 results, which showed disciplined spending. Company’s future increasingly driven by auto OEM business, while retail focus and marketing spend continuing to decline. Investor focus remains on M&A prospects, less so on fundamentals.
Summary Extension of merger agreement through 5/1 not a surprise, both mgmt teams remain committed to the deal. 2008E FCF forecast now includes $37MM cash CRB payment (expensed in 4Q07, cash paid in 1Q08). Key 2008 ests: 1.6MM net adds (1.5MM OEM, 80k retail), 5.2MM gross adds, $10.48 ARPU(assumes 2H08 price increase if merger not approved), 3.1% churn, $68 SAC, $96 CPGA, $1.4BN revenue, ($132)MM adjusted EBITDA loss, ($144)MM FCF loss. If merger does not go through, company will need to have $800MM in maturities to refinance in 2009: $400MM in revolvers ($189MM currentlydrawn) and a $400MM convertible which is extremely unlikely to convert ($50 conversionprice).
Tyler Savery Position – Long Sirius, Long XM
Tyler, can you tell me what you think about the following?
Days like today make me wonder…. hrmmm super low volume… what long would sell on a day like today with a merger potentially happening soon? It’s pure BS manipulation.
They are so manipulated and arbed that share value doesnt even mean anything anymore. Nobody even cares about these stocks anymore. Also, even though the % short hasnt really increased, I’m sure the volume of shorting certainly has.
I would not be surprised if most of the 30 million average shares traded on any given day, are people shorting and buying them back later in the day. Sure their net short position is the same, but the volume of shorting has likely increased a bunch. That being said, when the days to cover is listed at 3, it’s probably more like 10-12 due to the volume of people selling short and buying back at the end of the day and creating volume that isnt really there.
Also, every day that the price goes down the arbs will make more money when they merge and the synergies get priced in because they will get the arb % on a higher price so they have no reason to buy.
Another funny thing is that while all the analysts called for a merger, now that one is announced they are trading at a fraction of what they were even though siri has outperformed. Some of the same analysts who were calling for a merger are saying the synergies aren’t very big now and the risks are high. In the meantime, they can do as they please with the stock price.
Basically, if you are long I don’t understand why you would be selling now and in turn, I don’t know where the volume is coming from.
sirius intentions….
I would suspect that a lot of short term trading is happening. The channel that these equities have been trading in has some attractive attributes, but not so much as to drive volume. There are far better plays in the equities.
The sentiment is simply waiting on the merger. If announced, people will jump in.
Personally, while I am a shareholder in both companies, SDARS represents a small percentage of my portfolio. I have much more attractive investments that give me better returns in shorter timeframes. I hold because my average prices are very low, even compared to today’s price, and I hold because I believe in the sector long term.
Who is selling if you are long and haven’t sold already? Doesn’t make sense pre-merger at all.
I guess it’s only another week until 300,000 options expire worthless.
The sellers are those that trade on short term. As the equity reaches the edges of the channels, activity increaes. A perceived low is an opportunity for buyers to come in, as well as a stop point for people that guess the low wrong. In my opinion this stock is being played because it has a channel that would appear to be safe up until the time a merger decision is announced.
I have to admit I do it. I can’t resist 2.6 and 2.7 there really is not to much down side there (in my opinion). At 2.9 the downside is a little more (short term). In my defense though I do it with only 3,000 shares and do keep my main holdings on a long bases. It is just to hard to resist it has done it so many times. Besides I think it is worth at least 2.6 without the merger. So I think the only risk is, I have to hold it for a while. So really can you blame me, it is something to do until I go to Vegas LOL.
I’m pretty sure siri is trading lower than it would be without the merger ever being announced so basically the way it is priced now the merger is not accretive and is in fact harmful.
The only explanation is the merger takes another x amount of days and they spend more money on litigation and it never goes through and car sales are down 25% over last year and their arpu gets worse and sac doesnt improve.
That’s pretty much the only way it should be priced the way it is now.
It’s just annoying that the price is the way it is because thats where institutions CAN push it not because it’s trading in a reasonable range. Also funny is Goldman buying up shitty 2.5% debt and bashing the stock at the same time.