The merger is finally here. After a long and drawn out regulatory process, the birth of Sirius XM Radio has many investors singing the blues. The question is how long the street will stay on the blues channel, and will the next channel be more upbeat?
With the converts arbitrage action panning out during the trading of yesterday and today, it may well be that the stock has stabilized, and perhaps even marked a strong bottom that should become a very strong support point.
Many investors still have various questions, and the process of the transition still has a few more days to unwind. XM shareholders will see their accounts have shares that are able to be traded by this Friday. Those that were short XM will need to settle their trade, as the short positions do not transfer over. The XM shares you borrowed to sell short were bought by someone else, who has already (in theory) converted them to Sirius. Because of this, Friday may be an interesting trading day that sector followers will want to watch.
So how does Sirius XM Radio go from singing the blues to rockin' and rollin'?
Strong fundamentals, good PR, executing the promises as committed, and keeping the street in the loop with guidance that analysts and investors can sink their teeth into. For the past 18 months SDARS has been marching to the beat of whatever suited any particular investors fancy. A consistent beat will deliver confidence.
Merrill Lynch analyst Jessica Reif Cohen issued a report yesterday where she reiterated her $4.50 price target. Cohen is a media analyst, and one who's opinion I place a lot of weight. According to Cohen, "Strong operating leverage and high contribution from new subs should drive an acceleration in EBITDA and FCF. Improving trends in retail and improving conversion rates in the OEM channel should allow Sirius/XM to capitalize on the more widespread availability of satellite radio in the 245mn U.S. auto fleet. We reiterate our Buy rating and $4.50 price objective for the combined Sirius-XM"
Cohen sees what is in essence a "THREE-BAGGER" right now. Put a quarter or two of combined operating metrics in the mix, and the confidence of investors in analysts as well as the company can improve.
Sirius XM Radio should schedule an investors conference that outlines initial projections, the path the company is taking, and expectations. This conference should be available to everyone. Investors have a glaring need to know the direction SDARS is headed, and they need to hear it from Sirius XM Radio management first hand. Do not wait for the quarterly call. Do not wait for the annual meeting. Do it now.
The fundamentals will take some time to prove out, but there are activities that can happen now that will also show the strength of Sirius XM Radio. Good PR is key. Getting the news out. Branding the Sirius XM Radio name needs to happen. Get signs into stores, and let the world know that satellite radio has been reborn. That's all well and good, but other PR needs to happen as well. Sirius XM Radio needs to correct the damage done by the National Association of Broadcasters. They need to prove to investors and the public that the company has integrity.
- Announce the first Open Access manufacturer with pride.
- Announce the informational and minority program with pride.
- Embrace the Public Knowledge's of the world for their opinion on how to handle the informational programming.
- Announce that those that already have a subscription to both services can now get a family plan rate on one of the subscriptions.
- Announce when the repeater towers are in compliance with pride. Don't let past FCC discretion's jade the vision of the merged company.
- Spell out exactly what lifetime subscribers and those with long term contracts will get for service and why. My opinion is that lifetime subscribers should get the service they currently get, but also get 3 months of the "Best of Both" free as a trial for being loyal subscribers. If someone still has over 1 year left on a contract give the a one month trial of "Best of Both". This move was not required by the merger, but would help demonstrate that the company is a stand-up company that is looking out for consumers.
Do you hear the music changing? Steps such as these are confidence builders. Confidence is what the street needs. Not just in the bottom line, but in the company. Build a reputation of a premier media and entertainment company, and prove the naysayers wrong by good company metrics, being a good corporate citizen, and reversing the battle fatigued feelings that many SDARS investors have.
The merger is done, and there was a smattering of claps from the street and an undertone of the blues. Management now needs to step up to the podium, and turn those isolated claps into a thundering chorus of WE WILL ROCK YOU! Get the street as well as consumers behind this company so that it can prosper.
This Is The Spirit Of Radio. It is alive in everyone. kindle the fire, and let everyone know that Sirius XM Radio is the real deal.
Position: Long Sirius, XM.