Merrill And Goldman See Gloom, Barclays Sees Upside
After what has been virtual silence in the street this week, a few investment bankers have peeked out from the bunker to offer their latest opinions on Sirius XM Radio. Merrill, who is now part of the Bank of America family, and Goldman have doubts about the prospects of stock performance, while Barclays, now the proud owner of Lehman Brothers sees the stock more than doubling by years end.
MERRILL LYNCH
Downgrade to Underperform; PO of $1.00 “We are downgrading SIRI to an Underperform with a price objective of $1.00. The recent dislocations in the credit markets have significantly increased the risk associated with upcoming refinancings, negatively impacting our estimate of the company’s cost of capital and equity value. We still like the fundamentals of the underlying business and believe there is a good chance Sirius will be able to refinance, but we think the downside risk is too great to maintain a Buy rating.”
Thus, while Cohen likes the business model, the financing is a big overhang, and until there is clarity in this aspect of the company do not look for Cohen to adjust things to a bullish outlook. However, should the financing get taken care of, Cohen may well become bullish in a short timeframe.
GOLDMAN SACHS
Weinkes of Goldman was already a satellite radio bear, so the details of his report were not much of a surprise. The analyst took his price target down to 50 cents. Citing churn and the credit situation as the major factors, Wienkes sees still more downside and thus arrived at half a buck for his six month price target. The analysis of churn by Wienkes seems to indicate a lack of understanding of that aspect of the business, but regardless, the credit opinion is sound in that perception is bad on debt across the board.
“We continue to rate SIRI shares Sell and our price target is $0.50. We still see a viable market for satellite radio, SIRI’s niche, in our view, with a sole provider subsidizing mass market distribution and programming. Our base conclusion of overstated equity valuation relative to the expected FCF opportunity matches our prior analysis; however, the nature of our concerns has shifted toward the viability of the business model given current sub economics. That is, we believe the company will need to add roughly 8.5-9mn gross subs just to net 2mn new subs in 2009.”
BARCLAYS
Less than a week after the Barclays logo appeared on the Lehman Brother building, the company has initiated coverage on Sirius XM Radio with a buy and a $1.80 price target, which is more than double current prices.
“Initiating coverage on SIRI with a 1:OW rating and a $1.80 YE 08E price target (driven by DCF), which represents approximately 27x 09E EBITDA of $273MM. This is a change from our previous $2.10 price tgt, due to a higher interest rate in our DCF calculation, reflecting credit market conditions. Company’s future driven by growth of auto OEM segment, combined with cost benefits from XM/Sirius merger synergies. 09E EBITDA est $273MM vs. $300MM guidance. Key near-term risk is need for refinancing of approx. $1.2BN in maturing debt in 09E”
Position – Long SIRI, No Position Investment Banks
Right now I actually hope it goes to $.50, This way, with very little investment, I can average down to about $1.30 This would be great. Even if the company does terrible business, I see it bouncing around the $1 range for the next year or so, so I would be able to get out if I wanted at about break even… although, I wouldn’t want to sell for a while anyway.
Tyler-
A question – When were these new opinions issued from each of these three entities? Was it today, and if so, at what time (approximately)? The reason I’m asking is to try to determine if today’s stock price factored in any of these opinions or if it was solely influenced by the macro credit environment. Obviously, Monday’s SIRI price action would be affected by the timing of these opinions if they were issued today after market close. Thanks for your answer!
Wouldn’t .50 definately mean a delisting from Nasdaq unless they do a 1:3 reverse split. 1:2 would mean that would still be teetering on $1 mark.
The only way Sirius can avoid this is to get financing announced to put them solidly above $1.00.
I know nobody thinks this has any meaning, but SIRIW now dropped to .10. The last 2 times this symbol dropped, Sirius dropped down another big notch.
This stock is a financing play right now.
SXM: The delisting requirments are not strictly stock price based, although they will get a letter from them in the next 60 days unless the stock price hits $1 by then. It has to do with “trading equity” which Sirius XM has plenty of at this point. They will have to request a hearing from Nasdaq, who can then change their mind.
From what I was told, almost 800 companies recieved a delistment letter last year, and only about 25% of them were actually delisted. (200 = delisted, 600 remained on the nasdaq)
This is utterly disgusting. I cannot say anything more.
GS is wrong on the subs.
9 million Gross would likely net 2.5 million & put them at 22 million by the end of next year. As long as they finance the debt, they will be in great shape heading into 2010.
GS wants to force new converts and that obvious, which could dilute stock significantly more. This is a game they have been playing – bringing their price target down again and again even though stock breaks through previous many months before they predicted.
This is a scam with target now moved to .50. What is next .25 ?? Nothing trades that low unless it’s on the pink sheets, so what are they trying to pull here !
SXM: I appologize. Would you like me to let you continue to beleive wrong information? Or would you like to be corrected?
If it is worth anything, I agree with you that this is more of a financing play than anything right now. How goes the Financials, so goes SiriusXM.
Newman –
Are you talking to me because I appreciate you giving this information and I was not not responding to you ?
Is the equity requirement have to do with market cap ? I’d like to understand if there is a strict rule.
Thanks.
My take on this whole thing is that we are going to zero. Dont get me wrong, I am a siri xm supporter and have lost as much as everyone else on these sites. But I feel that no advertisement and no functioning of the company as one entity means only one thing to me: They do not want to launch as a merged company until financial debt is worked out. Even if that is through bankruptcy. Think about it. I they can relaunch as a merged company emerging from bankruptcy they can be a strong positive force to the consumer.
Newman, this is pure speculation but regarding your “so go the financials” comment above, we all know that Sirius XM plans to finance some portion of its upcoming debt … right? Earlier, in a separate post (or maybe on a related blog–damn memory) I mentioned that the company (the CFO) was supposed to present at Deutsche Bank’s 2008 Leveraged Finance Conference (in Scottsdale, AZ earlier this week). So … what would the CFO be doing at such an INVESTMENT bank’s conference, perhaps positioning the company for some business with DB??? Since May 2006, per DB, the bank has been expanding its presence in the America’s. DB initiated coverage of Sirius in 2005. I have been digging to find the CFO’s presentation or a transcript but with no luck so far. Sure would like to know what transpired at the conference….
sirilong, you will have to dig for it but in an earlier article or comment (unless I am mistaken) Brandon explained why the company would not go bankrupt.
I think that may have been in the article entitled “Debt Issue is a Non-Issue”
Sirius up .04 afterhours t .80 – can it hold for Monday and go higher after this GS downgrade again ?
Thanks Sirious Roadkill, but I found it. Brandon’s comment was on the Forums, Radio Discussion, General Sirius Discussion, Comment #14: “There will be no article from me. Sirius has NEVER filed for bankruptcy. Just consider any and all posts that refer to bankruptcy and such to be originating from the NAB.
“In 2003 they restructured the company to avoid bankruptcy and the plan worked. There is nothing further to write about.”
There ya go, sirilong. So, Brandon actually didn’t explain why the company wouldn’t go bankrupt–but he did point to the company restructure in ’03 to avoid the fate.
PM – I am sure wm and leh shareholders were saying the same thing. Either way selling .y way out of the stock from 1.5 down to 1.3 on past GS downgrades was a smart move on my part. why on earth would hold a stock as it continually falls (even if you had a magic ball that told you it would go up eventually). .50 does not seems about as unrealistic as 1.30 @ 1.60 and .78 @ 1.30. Mark my word, the company is up to something. and like leh and wm, the shareholders are not on the companies mind. I hate cramer & gs as much as the next siri holder, but looking at a birdseye view of the stock over the past 6 months, they have been right on.
So if you crunch the numbers, after you sit down as a merged company, on existing subs, and potential subs mostly coming from new car purchases? Is there a chance that your revenue stream is stronger if you maintain a strong presence for both products? Maybe combining the products aggressively is actually a reduced revenue stream.
Wow, I did it. I posted a positive remark. Better not log in to my account balance. lol.
sirilong, to answer your question, because I am in l-o-n-g. Many posts ago I explained that I entered to trade the stock but got caught up in the company’s plight (David vs. Goliath). I covered that the company has products and services loved by customers and subs. I noted that EVENTS have driven this stock, along with the otherwise excessively covered institutional shorting that continues (with short interest still high). IMHO, I’ve said that the company just needs to get past the ’09 debt. While I got in to trade, I became an investor. When I posted on this, the next day a pundit in the financial press mockingly said anyone that makes such a move is already a loser. OK, I’m a loser–on paper, for now, and perhaps for some time yet to come. But, as an investor (or maybe long term position trader on this stock) I have averaged down from 2.38 to 1.50. I almost pulled the trigger again today but missed the drop to .76 (while shuttling one of my teens to work). Had I done so, I would’ve averaged down again, this time to the 1.30’s. Is SIRI a falling knife? Possibly (but I am using only discretionary funds on this speculative play). Will Mel sell us out? Don’t know. Will powerful shorts drive the stock down more? Quite possibly. But on the other hand, is the company at work to overcome the relatively near-term (Feb part of the ’09) debt? I believe yes, very much. Why was the CFO really at the Deutsche Bank ’08 Leveraged Finance Conference “to present” this week. Go figure. Are new “merged entity” products and services coming. Absolutely by all reporting. Are investment banks and analysts mixed on whether SIRI is a Buy, Hold, or Sell? As much as ever in the last year and since the merger. Can (most) technical indicators and fundamentals be used to support trading / investing decisions? Not! (I lean toward charting and patterns.) As I sit here listening to the McCain and Obama debate, and after following the banking crisis all day, I wonder whether Mel is putting contigencies and management reserves in place to support workarounds that may be needed between now and February. I also wonder whether Mel, as has been surmised on this and other SIRI blogs, really doesn’t care about us longs, who are in an odd way akin to the Battling Bastards of Bataan, “No mammy, no pappy, no Uncle Sam.” Personally, I think Mel, even though he is a deal maker, doesn’t want to see longs suffering as we have. I think that he and his C-level team are being purposely mum to avoid giving away their battle plan secrets. This leaves us to speculate–and you know how rumors can spread. Anyway, I’m getting mighty wordy on this post so I will cut it short. Ya either have faith that the stock will turn around or ya don’t. I do. And I don’t believe the vocal but small-time shorts on this blog are the threat. The institutional shorts are the problem. The company needs them to run for cover. On the SatWaves blog CRFCEO published the twice-monthly short interest data. I posted the related percentage changes and charted them. Anyone can cut the data CRFCEO posted and copy it to Excel and chart it. The drill is informative. I makes clear that shorting is the problem. I only have a six-pound meat computer so I am not the smartest guy in the room, but even I can see this–and the charts make it clear. What will make the shorts cover in masse and get off the company’s back? Performance, persistence, and absolute focus on working the company plan.
Nicely said PM
With regards to Goldman’s negative outlook, I find it pretty damn amusing since their own outlook doesn’t look too rosy either in case Wienkes hasn’t noticed of late.
Point is: Physician heal thyself.
SN
Hey PM, I made it to the end. Thanks for the effort.
We went 17 months hashing out the merger, and it actually comes down to the February debt. Go figure. So we put out the Feb. debt watch. Let’s face it, thats honestly where we are at.
Did anyone listen to the actual reason they shut Wamu down today? The bank still met all guidelines. They shut it down and sold it off, because 15 billion dollars had been withdrawn from deposits in seven days.
My point………. Debt currently terrifies investors. They see themselves completely broke and insolvent. That in my opinion is why we are completely at .76. Not the shorts. It’s the debt. It was the debt when we did the deal to buy XM. It was the debt when Mel gave his infamous guidance talk. And it’s still the debt that makes people hit the sell button on Sirius/XM. It’s not Weinkes Blinkies or Nod. It’s debt debt debt debt. And until people feel liquidity and confidence has returned we are a poster child for what terrifies investors. Believe Mel can get another deal done for the February debt, and be handsomely rewarded. We all thought that about the merger. But “DEBT” got in the way. Get rid of the debt, and I say we rumble up like a runaway rocket. So I say start the countdown. 5 months and some days to go until “D” day. Debt day. Do your thing Mel.
Socal………………runningfool…….
socalrunningfool, a debt countdown clock? Grrrr-ate idea. Maybe Brandon and Tylor could update this website / blog to include a countdown clock promiently running on the homepage–then WHEN the Feb debt gets handled reset the clock to count down to the next hurdle in May, and then do likewise for the final ’09 burden in December. I think that–and seeing the clock used to focus some of the articles and threads–would be beneficial.
Sorry about my spelling of promi”n”ently. If I could only type without making “misteaks”…
Socalrunningfool,Sxm,
I think you guys are right on the money.
Once the loans are re-fi Sirius will be fine.
2009 and 2010 are looking stable for subs. Maybe a couple million each year or a little less which is pretty good considering the overall market today.
I just hope their is no behind the scenes bullshit going on like let it drop to .50 and sell it off to Microsoft or whoever.
That would be a major screwing to the stockholders, and my question would be
Was it planned all along?
I don’t think I trust anybody anymore
vaporgold
Too many share holders are loyal subscribers. This is one of the only stock IMO that the share holders are every day loyal users of the product. If Mel screws the share holders hes flirting with disaster. Myself and im assuming most here will cancel their subs. I love Stern and Bubba but I would not back a company with my sub $$$ if they were to rape my share $$$.
Wall Street LOVES this. Their companies can’t be shorted. They are getting bailed out by the taxpayers. And they can KEEP on shorting all the stocks like Sirius that they’ve always shorted…because the economic crash and fear that THEY THEMSELVES CREATED is giving them that ability to feed off the fear and bash companies into the ground while THEY are protected by the government.
IT’s FUCKING CRAZY ASS SHIT GOING ON HERE.
What cracks me up is that these are the same people who love to label ANY government help to people like you and me as SOCIALISM….but when their buddies on Wall Street are threatened….WHOA!….it’s GIMME! GIMME! GIMME!
Part of me thinks that this FEAR about a second Depression is as PHONY as the FEAR Bush used as leverage to wage an illegal war that’ll cost us over a TRILLION dollars if not more.
THEY are using fear again to RUSH to a bail out(FREE MONEY) for them to wage an illegal war on US THE TAXPAYERS.
The more I think about it, the more I say LET THEM BURN. I’ll take my chances. CLEAN HOUSE. LET the banks fail. Or at least HOLD OFF ON GIVING THESE greedy bastards this bail out.
Maybe if we let them crash and burn….it won’t be as bad as they say? Maybe NOTHING will happen but a few greedy companies will go BUH-BYE.
But even if the economy does crash and financial armageddon sweeps the country and world. We will survive. And maybe it will shake the corporate criminals out of the tree once and for all. We can then start over and let the free market work again.
sirilong,
your comparisons to WM and LEH are completely inappropriate…
Sirius is not a financial institituion with mandatory liquidity requirements where customers where and must be protected by the government so that customers can remove their deposits at a whim.
that’s what makes investing in financial institutions so dangerous right now….
financial institutions cannot ride out the storm when these storms comes….
other companies, including Sirius, Office Depot, etc., can ride out the storm….
Office Depot just refinanced about $1.25 billion….
IMHO, Sirius should be able to refinance soon, too.
PM: I’m still laughing thanks. I would like to see that clock right now put on the website. It’s where we are and that’s that. I’d also like to see Weinke’s face when that debt gets refinanced and the stock soars.
Vaporgold. I’m with you my friend. I trust noone. I doubt that will ever change for me in corporate America, other than I have to say. Charles Schwab. No I don’t own the stock, but that guy has taken care of shareholders through all of this because he didn’t go for the bullshit profits. Of topic sorry. Anyway, How many of these ceo’s does it take to say “we look great”, then two days later they are dissolved. Are you kidding me. This new Wamu ceo gets 12 million for two weeks??????????? WTF is wrong here. Later.
Dave: I agree with you.
Shark: You said it all. Thanks.
I just watched Real Time With Bill Maher, and he had a funny bit on the whole “Socialistic” bail out of Wall Street.
He basically said, “yeah, we’ll get Socialism alright….but not the GOOD kind. Not like FREE Health Care for all”
This is like REVERSE Socialism. The powers that be were AGAINST any sort of Socialism when it came to helping the AVERAGE AMERICAN. But soon as their buddies are in trouble…THEN it becomes OK.
And the part that Kills me is that even as they FIGHT for this Socialistic bailout for their Rich Buddies….they are trying to BLOCK ANY PROVISIONS to PROTECT the AVERAGE AMERICAN in this bill. PLUS at the same time GIVE their rich buddies GOLDEN PARACHUTES if they are ousted from their jobs.
So basically they are not even trying to hide the fact that they care NOTHING for the Average American. Socialism to them is BAD…UNLESS it means bailing out their rich buddies WHO GOT US IN THIS MESS. Then it’s OK.
Oh…and those same Average Americans who we didn’t want to help before…We now want THEM to pay for this bail out. And OH YEAH!…We just want the 700 million with NO questions asked. No stipulations that will keep our rich buddies from stealing some of that money to pay themselves BILLIONS in exit bonuses. AND ONE MORE THING….WE DON’T WANT TO HAVE TO PAY THE TAXPAYERS BACK.
This is insanity.
You all think the NASDAQ would like to get rid of Sirius XM, you people are nuts.
shark Says:
financial co’s cannot ride out the storm when these storms comes….
other companies, including Sirius, Office Depot, etc., can ride out the storm….
Office Depot just refinanced about $1.25 billion….
IMHO, Sirius should be able to refinance soon
What fool gave Office Depot a billion and a quarter greenbacks? Office Depot is the Rite Aid of office supplies. If somebody will lend that dinosaur outfit money, SIRI should be a lock.
appears to be the lenders party thereto (the “Lenders”), JPMorgan Chase Bank, N.A., London Branch, as European Administrative Agent and European Collateral Agent, JPMorgan Chase Bank, N.A., as Administrative Agent (the “Agent”) and Collateral Agent, Bank of America, N.A., as Syndication Agent and Citibank, N.A., Wachovia Bank, National Association and General Electric Corporation, as Documentation Agent.
By ANDREW TAYLOR, Associated Press Writer 57 minutes ago
WASHINGTON – “Automakers gained $25 billion in taxpayer-subsidized loans and oil companies won elimination of a long-standing ban on drilling off the Atlantic and Pacific coasts.”
That’s what I’m talking about. Automakers getting a nice handout and gas getting cheaper. Now we are getting somewhere. More cars. Cheaper to drive.
Tyler,
Can you please post some info on when those comments were released (day and time)? I assume the comments are released to their clients first, right? How did you get this info and what is the fastest was to get it if you are not a client of those firms? I haven’t seen anything that refers to these new comments on the news wires yet……strange………very strange!
What a lot of you are missing is the current rate that Sirius XM debt is trading at. A yield of 25%.
Now the bonds if they were to be refi’s would have to pay 25% or more.
This is a result of the current debt market. The bond billies are large and in charge.
Without the loosening of the credit markets, the existing debt will be too much to overcome.
Seems many here and on seeking alpha would prefer we give all the positive news only. I own the stock. Tyler owns the stock. By far we are Sirius’ biggest fans.
But would it be prudent for us to keep information that affects the stock away from our readers? Is that what we are expected to produce? Glowing articles that ignore potential problems?
If so, you’ll need to find a different source of information. I want to give the good. I hate writing about the bad. But its up to the company to change that…not SiriusBuzz.
And Demian, what makes you think we are not clients of those firms? Between my accounts, Tylers accounts and Charles’ accounts, we’ve got it pretty well covered.
Aside from that, many of our readers are also clients of other firms, and they send in tips all the time.
Which means the fastest way to get it is from SiriusBuzz.
We all know that the debt issue is the game changer for sentiment on this company. Analysts are giving opinions based on pre-merger models because the company hasn’t given them anything else.
If you back into Weinkes subscriber number he is using a churn of about 2.04% (using 9 million sub adds, 2009 total subs before churn= 19.5M + 9M = 28.5M, using 2.04% churn = 6.98M deactivations, Leaving 2.02M total new Subscribers for 2009). From this he and others are basing projections for revenue, and FCF along with a sprinkling of current outrageous debt expenses for next year.
Without solid guidance and a detailed explanation of how these metrics and new ones will be affected from Sirius XM, we will be subject to downgrades with reduced financial expectations from just about everyone.
The bright spots for revenue growth that aren’t even in current operating metrics, arpu, sac, and churn, are new programs like “Best of Both”, “Ala Carte” adds, Used car activations, and a retail market in 2009 that will be reinvigorated with ala-carte radios and other new products. In addition Sirius is the only company that includes Ad Revenue in ARPU and this should grow and who knows how KPMG will account for it when combining the new company’s financials.
Frear has a lot of work to do to explain this company’s new operating metrics so that they can be easily understood by the investment community. Now that they are not competing with each other, full disclosure to computations will be refreshing. These analyst recommendations at this time are there and available, but IMHO they are completely useless.