Stanford Group has issued a note on Sirius, rating the equity a "Hold"
SIRI: Moderate subscriber growth.
Sirius will report second quarter 2007 results on Tuesday, July 31 before the market opens. We estimate Sirius may add 420,000 new net additions during the second quarter. Management will host an 8am ET conference call on Tuesday, July 31 The conference call can be heard via a webcast on investor.sirius.com.
Mel Karmazin will speak at the National Press Club on Monday, July 23 at 1PM ET. He will most likely address the pending merger with XM. The webcast is accessible on the Sirius’ website.
Sirius could end the second quarter with 7.0 million subscribers, up 50% year over year. Sirius should continue to lead the satellite radio industry in terms of its subscriber growth rate, but growth has slowed.
We estimate second quarter revenue of $232 million, up 55%. Cost per gross subscriber addition could rise to $106 causing a first quarter oibda loss of $87 million and an EPS loss of $0.11.
XM and Sirius have proposed a merger of equals. XM holderswill receive 4.6 shares of Sirius stock for each XM share they hold. While a satellite radio merger could uncover substantial cost savings, it may six several months to hear from regulators and well into next year to start unlocking merger synergies.
The merger faces significant regulatory scrutiny from the Federal Communications Commission and the Department of Justice. Stanford policy analyst Paul Gallant believes there is a 60% chance the DOJ will sue to block the merger. The
transaction is slated to close by yearend.
For 2007, we estimate that Sirius could add 2.2 million subscribers, bringing its total to 8.2 million, up 37%.
We forecast 2007 full year revenue of $951 million and an oibda loss of $396 million. EPS may be a loss of $0.46.
Our $3 price target reflects a more moderate near-term growth in satellite radio. Sirius trades at 6x 2007 estimated revenue and $700 per our 2007 subscriber estimate of 8.2 million. By comparison, XM’s valuation implies $600 per subscriber and 5x 2007E revenue. Our valuation is based on the present value of future subscriber growth and free cash flow potential.
We rate Sirius Satellite Radio a Hold.
Position - Long Sirius, Long XM