David Joyce, an analyst for Miller Tabak, issued a report this morning raising his price target on Sirius XM Radio from .30 cents to .50 cents in the short term, and also established a long term price target of $1.25. The analyst remains neutral on the stock, but even the short term target would represent over a 20% gain from current trading levels.
Joyce cites both positive and negative aspects on various metrics. On the down-side he notes lower subscriber net adds in 2009, and higher interest expense related to the Liberty Media Capital Group debt and preferred investments for 40% of SIRI equity that rescued the company from potential bankruptcy proceedings. On the upside, Joyce notes that Sirius XM Radio is delivering greater than expected on costs of operations, noting that cost reductions are substantial.
Miller Tabak maintained a neutral rating. The firm notes that the neutral position is mostly associated with the current state of the economy, and some cash burn risk. This would seem to indicate that when the economy sees recovery or stabilization, that the firm has room to adjust the rating. Joyce notes that the removal of a bankruptcy threat is giving increased confidence in the equity.
On the subscriber front, Tabak now estimates that Sirius XM will deliver 556,000 NET subscribers in 2009. Joyce had previously anticipated 1,253,000 for the year. Joyce also delves into the ARPU issue which measures the average revenue per subscriber. Joyce has raised his ARPU estimate for 2009 from $10.16 to $10.29 mostly due to subscribers taking advantage of the "Best Of" programming which runs $16.99 per month. Given these factors, Joyce anticipates 2009 revenue of $2.507 bn (+2%), down from their prior $2.583 bn estimate, and with heavy and rapid cost-cutting, they expect OIBDA of $317 mm, up from their prior $291 mm estimate.
While it is argued that the Liberty deal saved the company, the interest expenses will be higher going forward. Tabak anticipates payments of $376 million, which is substantially higher than their previous estimate of $227 million. Given this factor, Joyce sees Free Cash Flow of $(35) million, down from +$66 million.
It is good to see that the street is beginning to follow the equity once again, and that analysts are looking beyond the debt issue as well as subscriber numbers. People looking at this company on a performance level of money metrics, cash flow, and control of costs.
Position: Long Sirius XM Radio