Morgan Stanley Changes Rating On Sirius XM
The news hit the wires this morning, and some Sirius XM (NASDAQ:SIRI) investors may be somewhat frustrated. Morgan Stanley has “Downgraded Sirius XM From Overweight to Equal Weight”. This new opinion by Morgan Stanley joins recent news from Citigroup, which initiated coverage with a $2.20 price target, and Barrington Research with a $3.00 price target. Obviously there is a wide range of opinion on this equity. The question is why is the range so wide.
Before going any further it is important to note that Morgan Stanley raised their price target to $2.3o from $2.00. It was their rating that went down a notch. In simple terms analyst Benjamin Swinburne is calling Sirius XM a hold at current levels. Nothing more, nothing less. When looking at upgrades and downgrades it is important to note the philosophy behind the analysis. Some analysts like Barrington’s Jim Goss are applying higher multiples to the stock, while others are using a more conservative multiple. In the case of Goss, the multiple is at a point that is likely as high as anyone would want to take it. With Citi and Morgan Stanley, the multiples are more in line with that of other media companies.
Setting that aside, Swinburne does have some pretty low expectations for some 2012 numbers such as subscriber guidance. He is anticipating 2012 net subscriber additions to be substantially lower than 2011. Knowing that subscribers are the bread and butter of the company, it only makes sense that if you believe they will be lower this year when compared to last, that you would be conservative in your estimates.
Where I think Swinburne gets it right is that a more conservative multiple is perhaps warranted. In my opinion he being overly conservative, but that is simply one opinion vs. another. Where I think Swinburne gets it wrong is that he is applying much to low of a number to the subscriber picture. The used car market is finally paying off for Sirius XM. In fact the company stated that the used car market is ramping up substantially, and Sirius XM just added Chrysler to the list of OEM’s initiating used car promotions on any satellite equipped car regardless of brand. This used car segment is one of the main reasons Sirius XM reported 540,000 subscribers in Q4. Swinburne is very correct in the fact that the overall deactivated subscribers will grow, necessitating even more gross additions to continue growth. If you look at things purly from a new car standpoint, there would indeed be challenges. However, the used car deals are already quite healthy, provide ample room for growth, and are including more and more OEM’s. In my opinion, this segment is being under-considered by Swinburne.
In summary, I see Swinburne as being conservatively right, but for some of the wrong reasons. This happens. What we have though is room for Swinburne to adjust his rating once Sirius XM reports their numbers. If his concerns are warranted based on that call, then he will maintain his stance. If the company issues guidance substantially different that what Swinburne outlines, then he can always adjust back to an overweight rating.
“If the company issues guidance substantially different that what Swinburne outlines, then he can always adjust back to an overweight rating.”
In other words, these guys can say whatever they want and whenever they want and they can “always adjust”. The fact that they are saying this publicly with an impact on siri trading is irrelevant!!! What a joke!!! Timing of his announcement is too important. I just wonder why would he come out with his so called opinion on the eve of 2012 guidance in the next few weeks??? He could not wait a few weeks till conservative Mel says what he plans to produce in 2012!!!
I agree with your points where he grossly underestimates the used car market contribution. I also believe he is not accounting for the fact the OEM sales pace is expected to grow and may compensate. 2.0 technology will also have some contribution in particular on the Hispanic community subs, AND we should not rule out its potential impact and some resurrection of retails sales. The good news CC is a few weeks away.
The equity analysts specialize in talking out of both sides of their mouths . . . there is nothing newsworthy in this article.
VI…..
They give themselves a bit of room all of the time. They had a price target of $2.00. The equity went above that target and has remained there. They needed to have some sort of report issued ASAP to deal with that fact. This type of thing happens all of the time.
Would he rather wait until the company report? Yes, but he had to address it now. Thus, he leaves himself a safety net to fall back on. This was essentially a “pass”.
The OEM sales pace is expected to grow by 10% while the absolute deactivation number is expected to grow by about the same….implying a wash
Well said v.l…BTW the real news today was the new deal with Chrysler. As far as MS goes, timing is very strange indeed…with OE hangover couldn’t have been better to give their Hedge Fund buddies a few pennies lower to buy up some more shares b4 the run up to the CC…jmpo
Go to the Forums and read “Wienkes Redux” in the Stock Thread . . . here’s a sample:
Heavy Metal Rift
Icahn, Goldman in clash over failed bid for recycler
By KAJA WHITEHOUSE
January 20, 2012
Last week, the billionaire and shareholder agitator dropped his $1.7 billion bid to buy Commercial Metals Co. after the scrap metal recycler — backed up by the opinion of bankers at Goldman Sachs — rejected his $15-a-share offer as “bargain basement.”
On Tuesday, just one week after Icahn backed down, Goldman’s research arm issued a report that added CMC to the firm’s “sell” list — a rare rating for typically eager-to-please Wall Street.
The analyst who issued the report, Sal Tarani, also slapped CMC with a six-month price target of $10 share — helping push the stock below $13 a share for the first time in months.
Billionaire investor Carl Icahn (above) is spitting nails after butting heads with Goldman Sachs in his bid to buy manufacturer and recycler Commercial Metals Co. The shares closed yesterday down 1.9 percent to $12.69.
The flip-flop raised eyebrows among corporate governance experts and reignited criticisms over the independence of investment bank opinion letters.
Reached at his office yesterday, Icahn chuckled over the irony, although it was clear he was also displeased.
“You wouldn’t believe this if it was in a ‘Saturday Night Live’ skit,” Icahn said. “The system truly is dysfunctional.”
“Have opinion you want. Will give it. Wire Goldman,” he joked.
While both CMC and Goldman declined to comment, outspoken financial consultant Janet Tavakoli said such practices are common.
If the board of directors “has an incentive to not go ahead with the deal … and if the adviser is getting paid by the board of directors, what do you think the outcome is going to be?” she said.
“You can’t tell me that their investment bankers are less competent than their equity analysts,” she added.
Read more: http://www.nypost.com/p/news/b.....usines…#ixzz1k6jY6l5h
I always find it interesting that people tend to slam an analyst that has a conservative rating on a stock, but never once complain when an analyst issues a bullish report.
SIRI investors celebrated Barrington’s $3 price target and I do not think I saw one person cry foul…despite a multiple that is at the high end of the spectrum and essentially requires the company to not only hit on all cylinders, but come in above that guidance.
While I disagree with some of Morgan Stanley’s opinions, I do not see any reason to question the price target they established, nor the timing of their report. The fact that SIRI surpassed their $2.00 target and held dictated that they issue a new report. There is no conspiracy here, just as there is no conspiracy with a $3.00 target.
Sometimes people get arrive at the right answer for the wrong reasons. By example, Morgan Stanley is only really looking at new car sales and production. Those are big drivers, but the numbers being put up are not big enough. The growth, above and beyond the norm, is happening from used cars and retention efforts.
“I always find it interesting that people tend to slam an analyst that has a conservative rating on a stock, but never once complain when an analyst issues a bullish report.”
I find it interesting that writers tend to generalize and lump their readers into a single category. For example, I was quite outspoken in my criticism of Spencer Osborn when on August 2, 2011 he issued a year-end price target of $2.70-$2.80 (the closing price on August 2 was $2.07).
I have also been quite critical of any Siri analyst employed by JP Morgan . . . regardless of the direction of the price target (impartial? unbiased? objective?)
Do we need to get into Matt Harrigan . . the shakiest gun in the west?
Do we need to get into David Bank’s repeated misses on SAC and ARPU?
Do we need to revisit Mark Wienkes?
That may be a generalized statement but, he is dead on. Here are the last two analyst upgrade posts I did and no one questioned anything in the comments. Actually, note the lack of comments.
https://siriusbuzz.com/miller-tabak-upgrades-siri-from-hold-to-buy.php
https://siriusbuzz.com/citi-launches-siri-coverage-with-a-buy-rating.php
Roadkill….
I have never seen anyone complain that a stock is manipulated when it pops up 10%. Watch a stock drop 10% and see people come out of the woodwork screaming manipulation.
Watch an analyst put up a price target of $3 and you see everyone cheer despite the fact that very few actually read the report or understand any of the logic contained in it.
I guarantee that if Morgan Stanley simply moved the price target to $2.30 that people would have had little to say. because he dared to call the equity fairly valued at this point and you have people screaming manipulation from the rooftops!
It is foolish!
“By example, Morgan Stanley is only really looking at new car sales and production. Those are big drivers, but the numbers being put up are not big enough. The growth, above and beyond the norm, is happening from used cars and retention efforts.”
Whoa, Spencer, you mean to tell me that MS would issue a downgrade w/o considering such a vital metric? Swinburne is much too good of a media analyst… He will be upgrading again in the not too distant future…
Boomer…..
While technically a downgrade by definition, it is more like a maintain.
Ironically it would apear that Morgan Stanley is of the same opinion that Liberty is at this point.
If you consider how much Sirius XM will grow subscribers this year, it could be less than 10%.
I have stated in the past that used car deals will be the mechanism by which Sirius XM delivers growth this year. I anticipate at least 6 announcements from the company on this in 2012. We just saw Chrysler get added to the mix.
Swinburne may not be considering this enough, but he will be paying attention at the call
It amazes me that Sirius has any long term prospects at all, looking at how it treats it’s customers according to numerous websites, including it’s own facebook page. It is homogenizing it’s offering (in the name of diversity – fooey!) and moving what is exclusive content via the satellite platform to the internet, which means it is competing with online providers that offer their services for free, and for that Sirius charges a premium. madness, the worm will turn. Customers do not like to be dealt with in a contemptuous way – Siri needs to thank goodness for the boost it’s getting from the car mfg deals, this will fall apart as soon as streaming to cars becomes more widely available/more cost effective.
https://www.facebook.com/siriusxm?sk=wall&filter=12