Miller Tabak Stays Neutral but Lowers Price Target on Sirius XM
Miller Tabak analyst David Joyce issued a report Friday in which he maintained his neutral position, but lowered long term share price expectations. Joyce is one of only a few analysts that are actively following Sirius XM Radio.
Joyce cited that Sirius XM missed their expectations on revenue but that this was balanced off by better than expected cost cutting. Joyce previously had a short term price target of $0.50 and a long term target of $1.25.
The analyst feels that subscriber numbers will continue to be an issue in 2009, and that revenue may be hurt by this. Miller Tabak is decreasing their 2009 revenue estimate to $2.390 bn (-2%) from $2.507 bn (+2%) but increasing their 2009 OIBDA estimate to $372 mm, above the increased $350 mm guidance above our prior $317 mm estimate. The firm now expects Free Cash Flow of $(47) mm vs. our prior $(35) mm estimate as interest expense has ticked higher, albeit due to the relief getting funding to replace maturing debt. Capital expenditures of $71 mm were more than Miller Tabak’s $50 mm estimate in 1Q09 which helped offset the OIBDA outperformance.
In essence, the firm sees a virtual treading of water for the remainder of 2009 and beyond. Investors may not want to hear such talk, but the reality is that Sirius XM has been treading water for quite some time now, and until citizens build confidence in the economy as well as the markets, Joyce may well have hit the nail on the head. Of course, a killer app for the iPhone could drum up positive traction, but until it is released, speculation is all investors have to hang their hats on.
Joyce feels that the major surprise evident in 1Q and into 2Q09 was the degree to which the Circuit City (a main proponent of satellite radio) bankruptcy hurt the retail channel. Personally, I disagree with this assessment. While Circuit City was indeed a major contributor to satellite radio sales, the retail channel was already hurting badly before Circuit City went away, and satellite radios are available in a ready supply from many other retailers. The issue at retail was a stale product line due to delays from the merger and consumer confidence.
Tabak expects revenue of $603 mm (-0.8%), down from their prior $628 mm estimate, with declines in subscription (due to fewer subs), advertising (the economy), and equipment (fewer subs). They expect OIBDA of $120 mm (a 20% margin), up from their prior $81 mm estimate and the $(105) mm posted in 2Q08 pre-merger but on a pro-forma combined basis. They also anticipate We Free Cash Flow of $(21) mm, below our prior $(4) mm estimate, and 2Q09E net subscriber losses of (319)k to reach 18.28 mm, sequentially better than the (404)k in 1Q09, but worse than their prior +156k net add estimate. Also, the drastic decrease in auto sales to a roughly 9 mm annual pace from the typical 16 mm pace, coupled with consumers cutting costs wherever they can, is causing them to estimate more net losses in the automotive channel, as well.
Miller Tabak’s Joyce seems to be carrying a conservative slant to his outlook, which at this time, may be the prudent move. The analyst is not beating up the equity, but he isn’t ready to sing SIRI’s praises yet either. Practically speaking, Sirius XM is treading water.
So what does all this mean? Miller Tabak reiterates their Neutral rating due to the offsetting factors of OIBDA growth vs. continued recession, subscriber declines and cash-burn risks. With greater market confidence in the survivability of SIRI (although at the price of dilution), they are maintaining our short-term target of $0.50, but their long-term valuation is now a range of $0.49-$0.94/share, down from their prior $0.66-$1.26/share on lower FCF estimates, using 3x-8x terminal value multiples on their discounted cash flow valuation model. Also, they derive a $0.86-$1.10/share valuation range (down from prior of $1.07-$1.29/share range) by discounting back future growth parity-based multiples on OIBDA streams.
Position: Long Sirius XM Radio
Treading water? Um…anyone could have told ya that. We’ve been trading sideways for awhile now.
I really don’t care anymore as my position is long and strong. I didn’t sell thru the merger delay. I didn’t sell after the weinkes effect nor the BK talk and the sickening drop to .05 cents.
So BRING it Miller Tabak. Do your worst. You don’t frighten me with all your “Neutral Talk”. Oooooooh Neuuuuutral! I’m soooooo scared. I better sell my shares riiiiight now!
NOT!
Gimme a break.
If this stupid analyst causes the stock to take a dive…I’ll just buy up more shares and lower my average pps even lower. Hey THANKS Miller Tabak!
It should be interesting which one of these news items effects the stock more. The Tabak report or the iphone app announcement that may come this week. Since we’ve been “treading water” so to speak….either we will dip below the surface on this bad news….or pop above the surface back into the boat on the good news. Which will dominate the other?
Knowing the media, they’ll jump on the negative and even find a way to spin the iphone app as a negative LOL….so I guess we’ll see.
Peace out.
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If this stupid analyst causes the stock to take a dive…I’ll just buy up more shares and lower my average pps even lower. Hey THANKS Miller Tabak!
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That’s a real intelligent investment strategy.[rollingeyes]
Still wishing for that iPhone announcement?
Well you can @#$% in one hand and wish in the other and see which one gets filled first.
My investment strategy is not based on Miller Tabak…but YES, if the stock takes a dive, I will average down some more. Based on my DD that is a very intelligent strategy.
I guess the opposite would be to panic sell on a dive like alot of people did when Sirius went to .05 cents.
How intelligent are those who sold then feeling now? And how are those who bought then(like myself) feeling about that decision now? Hmm? Huh?
Dollar cost averaging your PPS is intelligent if there are signs that the stock will do better.
There hasn’t been anything to indicate that it will.
Hedging would be the prudent strategy right now.
By the way…you didn’t state what they lowered their price targets to. You only wrote how their short term target WAS .50 cents and their long term target WAS $1.25. How much lower did they knock it down?
That’s “The Game ” it appears,Frjggin , no mention Jus direction…..& that’s Down it seems ……..
Any Pop from that now “crippled” I-app, will B a shorters heaven
IMHO…….
“Treading water”. I drowned a year ago. …………………..Tell him thanks for the eulogy…………….
Our day is coming and when it does the flood gates will open. It may not be in a month or even a year but it’s coming.
You know I just don’t know who is Fing who anymore, is the Siri trying to sabotage retail investors, or does the media just hate Siri and knows it may pose a threat down the road. We cannot win for loosing, Malone invested, his stock went on as a result of investing in-to Siri- but Siri cannot get a lift, all I know is somebody is going to get royal F– and what does it feel like the average retail investor. W_T_F SIRI GET of your D_F_ING ASS and do something for your shareholders. We truly are get F_IN_THE ASS
Hey Tyler,
Thanks for the update–in a professional, non-emotional, non-speculative way. Just have to say I cringe constantly when reading articles at Satwaves, so this is a breath of fresh air.
Neutral? That pretty much nails how I feel too about this stock over the next 6 months–won’t buy, won’t sell…will just wait. By the way, unless the iphone app has some other revenue stream besides the standard subscription, I don’t see it doing anything to the SP.
I’m neutral too….but you better believe I’ll buy more if it drops a lot lower.
If the shorts and bashers manage to scare people with some news(read Brandon’s article about a delisting from the Russell 3000) and knock this down significantly, I won’t hesitate.
I remember back in Jan/Feb when the fear of BK was used to knock it down to .05 cents, I kept buying. As a result, I lowered my average pps from $6.50 to .99 cents! 🙂
This time, I’d lower it down so far, that I’d be able to cash out on even the smallest of pops.
What happens when it doesn’t?
You can dollar cost average all you want but if the stock and company are essentially worthless then it’s all for nothing.
Nothing Sirius-XM has done since Malone came on board has convinced me that they can chew gum and walk at the same time.
Mel K has to go.
Siri is going to be the one who comes out of this as a big name when the economy gets better. It’s going to really take the cake. Yes Pandora, and yes yada yada, but they have smaller revenue possibilities, and they are all going to take from each other. Siri is stale because of a slow automotive market as well as a debt-loaded merger, as well as a bad economy. However, it saw its worst at .05 and a possible bankruptcy. When no one else could refinance, someone bailed them out and numbers keep creeping up better and better. When the economy turns around, Siri will turn around more and more as well. I’m averaged in at .13 and I’m a proud investor in Sirius. Yes, I’m diversified, but I know what I’m in for.
Yes they refinanced, but at 15%, plus gave up 40% of the company, hardly a good deal, but I will agree it was better than the alternative.
There is little or no marketing. Wait, I take that back, they do send out emails to current customers trying to get us to buy additional units or to buy units for friends and family. (Please tell me that this is not the only plan, Please tell me that they are not pinning there hopes of me paying for multiple subs. I have a lifetime subscription, thats it for a long time)
In my opinion, the company offers little or no news and it does absolutely nothing to fight negative reports.
Oh yeah, what happened to the Iphone app?
Is there going to be innovation to get this thing moving again or will things just stay par for the course? Nevermind, I already know the answer.
I don’t want to sound so negative because I love the service, I am just frustrated like a lot of others.
Good Luck
P.S. It must be nice to have a .13 average.
Mr. Joyce just diarrhead himself.