Thank you, very informative. My feeling is that this writer doesn't think we're at the bottom yet as far as share price goes. But, it's not doom and gloom either.Originally Posted by underway
Here's a good article from WSJ. It is accurate and succinctly paints the financial picture. Unlike the A-holes at thestreet.com or motley F, it is well balanced.
Back From the Brink, Sirius XM Not Yet a Buy By BRETT ARENDS
Sirius XM Satellite Radio (SIRI) is a popular stock with speculators, day traders and individual investors. It has developed something of a cult following on the bulletin boards. And anyone who managed to grab it last winter, when it traded as low as about a nickel a share, has done well—the stock is now 59 cents, after touching 70 cents a few weeks ago.
But this is not your ordinary penny stock. Anyone trading it, one way or another, ought to have some idea of what they are buying or selling. But with Sirius XM, it's not immediately clear what the company's really worth.
At 59 cents, the shares look cheap. But there are vast amounts of shares in existence: 3.88 billion, giving the equity a hefty aggregate market value of $2.26 billion. A consolidation is likely at some point, which would cut the number of shares and raise their average price. Wall Street does not consider penny shares respectable. And Nasdaq listing rules require shares to trade above $1 over time.
But the common stock is only part of the story.
More on Satellite Radio
Sirius XM Executives to Sell Shares
John Malone's Liberty Media holds 12.5 million shares of preferred stock, in exchange for the emergency capital injection that Liberty provided earlier this year. Preferreds are a peculiar hybrid, neither truly equity nor debt. But Mr. Malone has the right to convert each preferred share into 207 common, or regular, shares. In total, therefore, he holds 2.6 billion shares, which may not be immediately apparent to regular investors. At 59 cents, those would be worth another $1.5 billion.
And then there is the company's debt: $3.3 billion of it, including various types of bonds with different maturities.
All told, the full enterprise value of Sirius XM adds up to just over $7 billion. That's a pretty substantial capital structure for a company which had revenues of $591 million and operating expenses of $554 million last quarter.
On an annualized basis, Sirius XM's enterprise value, or market value of the whole business, is about three times sales. That's expensive by the standards of the U.S. market overall, which has an enterprise value of around 1.6 times annual sales, while the world's markets are on an average of about 1.3 times, according to FactSet. Anyone looking to invest at these levels should proceed with caution.
Until earlier this year, investers were more worried about Sirius XM's survival than its prospects for growth. Even after Sirius and XM's long-awaited merger last year, the companies were slammed by the downturn. Capital markets dried up for speculative companies just as sales of new cars—which account for a large part of their business—slumped. Meanwhile the quick rise of mobile Web applications—particularly online radio services like Pandora—cast a long shadow over the future of satellite radio. (Sirius XM has since launched an iPhone app of its own.)
Today analysts are pretty confident the company will make it. Largely thanks to cost cutting, XM has turned cash-flow positive, at least marginally. Standard & Poor's just raised the company's credit rating to B-. That's still well below investment grade, but analyst Hal Diamond says the risk of default "is now the lowest it's ever been" both for the merged company and each predecessor. The 2013 bonds, which were trading at 19 cents on the dollar last Christmas, are now at 91 cents.
At these prices, the bonds have an annualized yield to maturity of about 12.7%. As long as the company survives without another liquidity crisis, that would be a good deal. (The average yield on comparable single-A rated corporate bonds is currently 3.7%.)
Caveat emptor, though. Standard & Poor's predicts that Sirius' 2013 bonds, which are unsecured, would only pay out between 10 cents and 30 cents on the dollar should the company default.
Less chancy, perhaps, are the new 2015 notes issued in August. They are secured: S&P thinks you would get back 90-100% of your money if the ship hits the iceberg after all. The yield to maturity over six years is 9.4%. There are worse investments out there, but as with anything, you should understand the risks.
Write to Brett Arends at brett.arends@wsj.com
SIRIUS XM SATELLITE RADIO FORUM
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... just an fyi).
