David Kestenbaum, analyst for Morgan Joseph issued a report today on Sirius' Q4 and full year 2007 performance. The analyst carries a BUY rating and $4.00 price target on Sirius.


Sirius Satellite Radio
Rating: Buy

Merger Delay Overshadows Solid Results; Buy

Investment Highlights:

Operations take a backseat as Street continues to wait for the proposed merger outcome. While Sirius reported a solid quarter vs.our estimates, we believe merger-related concerns outweighed (and should continue to outweigh) operational execution. Overall, we continue to believe that as a standalone operator, Sirius remains better-positioned than XM; however, we are concerned with the lack of guidance for the upcoming year and hope the company will provide more color on its operational outlook when a final merger decision(either way, approval or denial) is made.

Better-than-expected subs, in-line revenues, lower SAC, and significant FCF equate to a solid 4Q, in our view. As already reported, the company ended the year with 8.322mm subscribers, above our estimate and surprisingly driven by better-than-expected retail net-adds, while OEM additions were in line. Revenue of $249.8mm met our $249.6mm estimate. SAC of $90.00 was below our $93.20 estimate(and vs. $103 last year), while churn was low at 1.7%. Finally, Sirius generated $75.9mm in FCF during the quarter, well above the $30.4mm reported last year.

OEM continues to ramp; majority of partnerships are targeting 70%+ penetration rates. The company's relationship with Ford (F-$6.43 - NYSE) was extended until 2016 and includes a 70% penetration rate target in 2009. Similarly, Chrysler (DCX - $92.20 -NYSE) was extended until 2017, with a 70%+ rate targeted for all 2008 models. Meanwhile, Mercedes, Volkswagen (VOW.DE - €150.47 -XETRA), and Audi have targeted 90%, 80%, and 80% penetration rates for 2008, respectively.

Retail remains a dying story; secondary car sales could provide anadditional after-market opportunity going forward. While net-adds of 211,962 were better than expected in 4Q07, the segment slowed significantly in 2007 and we would not expect a rebound in trends. However, we note the opportunity for Sirius to utilize the secondary/used car market (approximately 40mm vehicle sales annually) as an additional after-market outlet going forward.

Drop-dead date approaching; board meetings should result in an extended termination date. March 1 marks the termination date for the merger, and both companies should host board meetings prior to this date. As we've been saying, we do not ultimately believe the merger will pass, though we expect the board meetings to result in an extended termination date.

Estimate changes. Our 2008 revenue estimate moves to $1.129bn from $1.124bn previously, while EBITDA for the year moves to ($223.9mm)from ($241.4mm) previously.

Position - Long Sirius, XM