RBC analyst David Bank issued a report today covering details of Sirius XM's Q2 conference call. The analyst has no price target on the equity, but did make several points as to why RBC remains neutral on Sirius XM.

Like other analysts, Bank sees EBITDA beginning to surge, but shows caution with the realization that SIRI still needs to grow into its valuation and translate EBITDA Into cashflow. Bank seems to take no exception to the guidance issued by Sirius XM of over $400 million EBITDA and is expecting the number to come in closer to $500mm in 2010. However, the conservative side of the analyst notes that the enterprise value of ~$6bn, means that SIRI is currently trading at trading ~12x 2010E EBITDA (one of the most expensive valuations in our coverage universe). Thus, the upside potential is limited unless a higher valuation multiple is applied. In the current economic environment, that is hard to justify.

Bank wants to see SIRI grow into its valuation before he gets more constructive, and it is difficult to counter his reasoning. The valuations are tough, but the potential of profits around the corner is becoming harder to ignore. The main issue is that the news is good, but valuations and multiples already seem to be maxed out, and betting on potential is simply something that is not popular these days.

Tyler Savery Position - Long Sirius XM Radio