UBS analyst Lucas Binder issued the following report on Sirius' Q4.
Sirius Satellite Radio Inc. Mixed 4Q07 Results; Better EBITDA
SIRI reports mixed 4Q07 results SIRI reported lower than expected revenue ($249.8M vs. UBSe of $265.4M) dueto lower ARPU and equipment and advertising revenues. Still, SIRI reported EPSof $(0.11) vs. UBSe of $(0.13) as a result of better EBITDA, which benefited from expense controls.
Better than expected EBITDA and FCF driven by SAC and mrkting exp Higher than expected revenue share and royalty expense ($56.8M vs. UBSe of$39.5M) and lower than expected revenue were more than offset by lower than expected SAC ($90 vs. UBSe of $93) and marketing expense ($53.1M vs. UBSe of$80.4M), leading to better than expected EBITDA ($(107.2)M vs. UBSe of$(123.7)M) and FCF ($75.8M vs. UBSe of $56.2M). For the first time, SIRI reported positive ($8.1M) FCF for the second half of the year.
Still awaiting word on merger announcement There is still no word on the pending SIRI/XMSR merger. SIRI has decided not to release 2008 guidance until a decision on the merger has been made. Limited visibility from the DOJ impacts the outlook of the deal being approved. We believe, should the DOJ approve the deal, the FCC would likely follow suit. As aresult we remain 50/50 on the deal going through, at this time.
Valuation: Maintain Neutral Rating with a $3.00 price target We base our price target on a detailed DCF analysis, using 3.0% growth inperpetuity and 13.0% WACC.
Position - Long Sirius, XM