Bear Sterns analyst Robert Peck issued a report on Sirius satellite Radio today in which he maintains an outperform rating on the equity.


Sirius Satellite Radio (SIRI-$3.05) - Outperform

Deal or No Deal?

All eyes on the DOJ. Since the two companies announced the merger on 2/29/07, almost 54 weeks have passed. While the DOJ decision is anticipated virtually any day now, we view the fact that Sirius hasn't met recently with the DOJ as a positive. We are approaching the 03/01 deadline that the two companies had set for completing the merger, but the two boards could opt to extend the time horizon. We have consistently believed that the DOJ will approve the merger. As such, when/if the DOJ approves the merger, we expect the FCC process to focus more on concessions.

4Q results mixed. Sirius announced 4Q07 results yesterday, which were, in our view, mixed. Although the key net sub adds metric had already been released, gross adds were marginally higher, as was churn, ARPU and SAC were lower. The top line was marginally weaker, but the bottom line was better than our projections due to lower expenses. FCF was better than expected, driven by a significant increase in payables (contributing $129 mn to working capital) and likely reduction in capex (as the company opted to defer the satellite launch from 4Q08 to 2Q09).

OEM is the big factor in 2008 outlook and beyond. On the conf call, Sirius focused on OEM ramp as the key to sub growth. In 2008, deployment is expected to reach 50% of total partners' production. Ford is expected to install Sirius in 70% of MY'09 vehicles. Chrysler is planning to deploy Sirius in 70% of its MY'08 vehicles. Sirius recently extended contracts with both, until 2016 and 2017, respectively. Lincoln plans to continue to offer Sirius as standard equipment, and Mercedes is targeting 90% deployment this year. VW and Audi also plan to target 80% deployment rates this year. Kia is expected to install Sirius in all their vehicles beginning with MY'10.

Position - Long Sirius, XM