Merrill Lynch analyst Glenn Campbell upgraded Sirius Satellite Radio to Neutral Today. The analyst has a price target of $3.11 for Sirius.


The clouds start to lift

We are raising our opinion to Neutral to reflect 1) an increase in our DCF value following better-than-expected 1Q08 subscriber growth; and 2) our view that the negative influences on the share price (declining expectations for growth, refinancing concerns and regulatory risks on the Sirius/XM merger) have passed their peak.

Subscriber results ahead of our estimates

XM and Sirius both reported better than expected subscriber growth with their 1Q08 results today: in aggregate, 627K vs our estimate of 578K, down from 841K in the year-ago quarter. EBITDA losses were slightly larger than our estimates and consensus. For Sirius, we believe these results were good enough to support the stock, in our view; for XM, they were stronger yet.

We have revised our forecasts to reflect higher subscriber additions in 2008. We have also adjusted our long-term model to assume higher churn (2.5%, revised from 2.4%) and higher ARPU ($9.50, revised from $9.00).

DCF valuation increased: to $3.11 for YE08E With our estimate/assumption changes, our YE08 DCF value increases from $2.89/share to $3.11/share. Our YE09E valuation increases from $3.07/share to $3.37/share.

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Position - Long Sirius, XM.