UPDATE 1-After 17 months. Sirius XM shares rally to top $1
Wed Feb 17, 2010 2:57pm ESTRelated NewsAfter 17 months. Sirius XM shares rally to top $1
Sirius XM Radio Inc.
SIRI.O
$1.05
+0.09+9.55%3:00pm EST
* First time over $1 since 2008
* Staying above $1 avoids threat of Nasdaq delisting
* Analysts say company may still pursue reverse split
By Franklin Paul
NEW YORK, Feb 17 (Reuters) - Sirius XM Radio Inc (SIRI.O) shares topped $1 on Wednesday, vaulting that threshold for the first time in 17 months, amid improved sentiment about the pay-radio company's future.
Given the stock's dramatic twenty-fold rise in just over a year, the rally may run out of steam soon, analysts said. Along the way, however, the company may have gained credibility that seemed lost when it dipped as low as 5 cents last February, when concerns about debt pushed it to the brink of bankruptcy.
The stock was up nearly 13 percent to $1.08 in afternoon trading. It last was above $1 in September 2008.
Crossing $1 might also make the stock more palatable to mutual funds that would shy away from a company whose shares trade under $1. Sirius XM Chief Executive Mel Karmazin told Reuters in November that he was confident there would be no delisting, since the stock would rise, either on their own or via his power to enact a reverse split of up to 50-1. [ID:n30455685]
Wunderlich Securities analyst Matthew Harrigan said the company may still play that card, which once was seen as Karmazin's last option should it face delisting.
"Realistically, most of the real (funds) want something above $10 or at least $5," said Harrigan, who rates Sirius XM at "buy." "If the stock continues to go up ... at some point they are going to declare victory, and do a reverse split when it becomes apparent that they don't need to do a reverse split."
Sirius XM declined to comment on the stock activity.
NO MORE NASDAQ DELISTING THREAT?
Staying above $1 removes the threat that the company, whose market cap is about $3.7 billion, might face delisting by the Nasdaq. Sirius has bolstered its books following an investment last year from John Malone's Liberty Media (LINTA.O) that gave Malone a 40 percent equity stake in the company.
Last month, Sirius said it will report more than $100 million in free cash flow for 2009, after reporting negative free cash flow of $552 million in 2008. It is expected to detail full fourth-quarter results this month.
Analysts have attributed the stock's comeback to an improved outlook for auto sales, the source of most of its new subscribers, and an bigger percentage of customers who convert to paying customers once trials expire.
With its debt woes behind it, Sirius must bring in new subscribers and keep a grip on costs. The former will be aided by any momentum in the U.S. auto industry, which ended 2009 on an upswing.
Regarding costs, all eyes are sure to be on Sirius XM's attempt to re-sign shock jock Howard Stern, whose five-year, $500 contract ends this year. Stern has told his radio audience that he has been contacted by traditional radio companies and that he could see himself as a judge of News Corp's talent show "American Idol."
Lazard Capital Markets analyst Barton Crockett in a note to clients recently said he sees Sirius renewing with Howard Stern at $80 million a year in cash, which recognizes both his loyal fan base and the notion that he is "worth less now than he was in 2004."
Karmazin told Reuters at the Media Summit in November that he is limbering up for what could be colorful negotiations with the self-proclaimed King of All Media, who will want more money, while the company will want to pay him less.
"That would be how we would go into the room once the time came to go into the room. And the hope would be that we would come out with Howard staying with our service," he said. (Editing by Dave Zimmerman and Steve Orlofsky)