Yesterday, we took a look at the stock from a technical perspective. Today, I wanted to focus our attention on the fundamental side of Sirius XM. I think the debt issue has been beaten to death by naysayers, and my position is firm: It's a non-issue. Refinancing of some debt will occur in 2009 and in my opinion will be more favorable than it currently stands. Sirius XM will have a much better balance sheet and as such should see an improvement in their credit rating by that time. This should lead not only to better rates but also better credit options.

Speaking of balance sheets, Sirius recently released its second quarter report. One of the attachments to that report includes a combined financial statement. It takes some getting used to but this is the first clue we have as to the potential strength of the combined company. I say potential because it does NOT include any synergies of the combined company.

It is for this reason that I am not going to cut and paste a bunch of numbers that only an accountant could understand. I'll save that for an actual combined report complete with synergies included. The first thing that caught my eye was the purchase price that Sirius paid for XM of only 5.7 billion dollars. My first thought was that if you liked the deal at 7 billion dollars, you must love it at a 1.3 billion dollar discount.

As I studied the balance sheet to understand the new structure applied, I made a remarkable discovery. Sirius XM is trading below its book value of 1.60 per share! Simply put, the combined company has total assets of 10.6 billion dollars. It's total liabilities are less than 5.9 billion. Shareholder Equity is 4,714,068,000. That is not a negative number. That represents the amount of money would be divided among the 2,948,309,000 shares outstanding.

This is proof positive that the company is undervalued, in my opinion. Not only is it undervalued, it is undervalued based on the combined company providing absolutely ZERO in combined synergies. The book value will no doubt rise even further when the synergies are actually realized. For more on this, visit the SiriusBuzz forums.

Position: Long SIRI