It seems fitting that after Mel Karmazin's speech at the Merrill Lynch Media Conference that the first two analyst reports issued come from the opposite ends of the spectrum. We have the satellite radio bullish outlook from Citi's Tony Wible, and the bearish outlook from Wienkes of Goldman Sachs. This leaves all of the other analysts who fall between to issue analysis and reports. Getting the two extremes out of the way seems fitting.
The CITI analyst has been adjusting his price downward with each report issued, and the latest report is no exception. The new price target for Wible is $5.00, although the analyst still considers Sirius XM as "massively undervalued".
As noted by Karmazin at the conference, the expected synergies of $400 million have now been bumped up to $425 million. While this would appear to be good news, it was offset by a weaker top line according to Wible. Wible also noted that he sees revenues weaker from softer subscriber metrics, and that investor fatigue has worn on the equity.
As the bullish analyst in the pack, Wible has now adjusted targets from $9.50 down to $5.00.
Wienkes, the analyst that longs love to hate, is maintaining his sell rating on the company. Of those analysts following the sector, he has been the closest to the actual performance. The main question is whether the price action is a function of apathy for the equity or whether Wienkes has a solid estimate based on metrics.
Wienkes report does not contain a lot of detail, and the analyst maintains his sell rating because of lower subscriber estimates, as well as the upcoming financing for the company. Wiekes also notes that part of his rating relates to investors "show me" sentiment, which is a subjective measure of performance. This subjective aspect of the Goldman analysis is new in their reports.
Personally I would agree that there are many on the street who are in a "show me" mood. This could leave Sirius XM with upside potential if Mel Karmazin is sticking to his typical mode of under-promising and over-delivering. The big question is whether Sirius XM can over-deliver. For investors, this could mean waiting for the Q3 2008 financials to hit the street.
As I expected, Karmazin did indeed outline more detail, but it would appear that the street still wants more. This has the equity trading at new lows, and adds to the frustration level of sector investors. Sirius XM is at the mercy of short term traders. Long term investors have little to defend their position because the sector has been so embroiled in turmoil for well over a year.
With analyst estimates carrying a low of $1.00 and high of $5.00, there is a lot of room for varied opinions. Expect most other analysts to fall in between these estimates, and this equity to trade on near term speculation rather than long term until the third quarter financials and financing are outlined. There would seem to be some indication that Sirius XM will address the financing sooner rather than later. If this happens, one of the main overhangs on the stock will be removed. Whether the removal of such an overhang is enough to sole investor fatigue is yet to be seen.
Position: Long SIRI