Even after a Q2 conference call that exceeded the expectations of most, JP Morgan's Lev Polinsky did not take the step to upgrading the stock in the latest report issued today. The problem, in Polinsky's opinion, is that even though the company seems to be performing well, there is not a compelling value in Sirius XM stock.

Polinsky noted, "Sirius reported 2Q results significantly ahead of our expectations, and the company raised EBITDA guidance for the full year. Although we think the worst is likely behind Sirius, we do not find the valuation on the stock compelling, and rate it Neutral."

On the positive side the analyst notes that EBITDA beat their expectation by $30M, and that the company has increased guidance to above $400M in F’09, a $50M lift from previous guidance. Polinsky feels that high-margin revenue from the CRB royalty pass-through fee, as well as better subs trends and continued cost discipline, can drive F’09 EBITDA of $417M, up from their previous estimate of $346M.

Cost cutting was another positive according to JP Morgan. Nearly every expense line declined as a
percentage of revenue on both a Y/Y and Q/Q basis. Although Polinsky thinks 2H’09 margins could shrink slightly (driven by higher ad spend and the timing of some programming costs), the analyst remains impressed by management’s commitment to driving significant cost savings in the model.

On the subject of churn, Polinsky and I have slightly differing stances. Polinsky notes that churn improved to 2.0% in 2Q from 2.2% in Q1. JP Morgan thinks the better churn number was driven by seasonality as well as by incremental improvements in the economic climate, especially toward the end of the quarter. The churn in my opinion improved simply because Q1 is typically one of the higher quarters for churn. Polinsky sees a slight uptick in churn Q3 and Q4 as more customers begin to see the CRB fee on their bills. In my opinion, the CRB fees will not impair the sub numbers dramatically, and churn should see small incremental improvements over the next two quarters.

On the subscriber from, Sirius XM beat both the JP Morgan as well as the SiriusBuzz estimates. The bust came from an OEM channel that contributed higher than expected promotional subs. Management expects the nascent turnaround in car sales to drive better subs trends going forward. The ~400K subs lost in 1Q likely set a low-water mark for the cycle.

The note states, "Nevertheless, we remain on the sidelines. Even at our higher new F’10 EBITDA estimate of $509M, SIRI trades at a 12x multiple. Given the roughly half-billion in annual interest and capex in F’09E and F’10E, we do not think the equity presents a compelling value."

JP Morgan, while bullish on the business model remains in neutral.

Tyler Savery Position - Long Sirius XM