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Is Sirius XM a Buy, Sell or Hold?

by: Brandon Matthews September 28, 2008 | about stocks: SIRI    

Brandon Matthews

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After reviewing the latest reports from Merrill Lynch and Goldman Sachs, the only apparent fact in this sea of uncertainty is that one will be right, and one will be wrong. True, Goldman has been correct thus far, yet everyone knows past performance is no indication of future results.

In what appears to me to be an ironic twist, Merrill has become a lot less bullish while Goldman has become a little less bearish. In Merrill Lynch’s latest report, a lot of attention is now being paid to the 2009 debt issues that are approaching. Citing the worst credit market in decades, Merrill’s report is full of potential negative impacts should Sirius (SIRI) not be able to achieve its refinancing goals which include everything from diluting possibilities to shareholders being potentially wiped out in WAMU fashion. Merrill again reiterates that they do not see this scenario as likely.

I found the Goldman report much more interesting, however. For starters, they lowered their target to .50. On a percentage basis, that doesn’t present much downside risk relative to their recent downgrades, although that does not include further dilution or the total loss of shareholder equity. They cite key risks as ”faster-than-expected merger integration and financial outperformance.” Key risks? Those sound like risks to short-sellers and not shareholders.

Both reports seem to give much more attention to the May 2009 loan, and both seem to concede that the February 2009 converts are not a major hurdle anymore.

My take on this is to hold for now. The Senate Saturday passed the 25 billion dollar auto loan bill. This should free up money for the OEMs to use elsewhere, including the potential for the issuance of lines of credit to Sirius XM. Every dollar that can be deferred by such a plan could be used to eliminate the debt problems. The pending government plan to restore the credit markets should be approved by Monday as well.

As for the key risks cited above by Goldman, faster-than-expected merger integration is certainly plausible. In fact it seems the company has done little else thus far this quarter. Financial outperformance seems highly unlikely, unless the company can execute on the the Best Of programming packages. XM subscribers potentially joining Sirius for Howard Stern and the NFL can certainly lead to increases in revenue, and those 20 million nonsubscribed radios already on the roads may see new life as GM owners reactivate the service to get the content available to them on Sirius. This won’t become reality, unfortunately, until a full quarter of the combined services can be effected.

Disclosure: Long Sirius.

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This article has 62 comments:

  •  
    Sep 28 10:21 AM
    You failed to comment on Barclays positive outlook. Also give it 2 quarters to start to see truely positive results.
    Reply
  •  
    Sep 28 10:34 AM
    Thank you for your continued posts about SIRI. They are teaching me a lot. When someone becomes so wrapped up emotionally in their stock position they will grasp at anything rather than admit they made a wrong decision and move on.

    I did this a couple times in the past and your posts are a reminder never to get so emotionally committed to a stock that I don't use the discipline to preserve my capital.

    As for SIRI, it is obvious that the toxic debt has killed the common. It has happened many times before to companies that choose to load up on toxic debt and then have their business plans underperform. The toxic debt holders simply short the common into bankruptcy or a fire sale. Either way, the debt holders make out like bandits. In bankruptcy, the common will be wiped out and the debt holders will be the new common holders, if there is still a possible business here. SIRI will emerge from bankruptcy with a much small debt position (of the non-toxic kind) and the old debt holders will hold plenty of fresh new shares issued for forgiving the debt. Since debt holders made out with their short positions, they end up with making money coming and going.

    Meanwhile, longs like you will be posting... why didn't I see this coming?
    Reply
  •  
    Sep 28 11:03 AM
    KTWALRUS, unfortunately, last time I checked, you cant force a company into bankrupcy by dropping their stock price.
    Im tired of analyising analyist opinions on this stock. Go back and read the buy rating opinions on AIG a few weeks ago, and Washington Mutual. Analyist opinions are important, to get a sense of what wall street wants you to do with this stock. Right now, Id say its getting closer and closer to buy time.
    Brandon.....Did you see what you did there? You disregarded the Fed 09 debt as a major hurdle, because they said so. WHAT!!!!!???
    I thought thats why the stock was at .80 cents? YOUR KIDDING ME!!.
    Do you mean this stock price really had nothing to do with the debt due in fed09? OOOO, now its the one due May09?
    Dont you see what is going on here? They are "transferring&quo... your worry, subtely and slower from the fact that the Feb debt is no longer an issue, and when it clears that hurdle they want the new fear already in place and situated so they can keep the stock down even longer.
    And you didnt mention this. See, now Im back to questioning whether your long or short again, Brandon, or just incompetent. You just justified this little transition by agreeing with it without even mentioning the most important facts about it. That the Feb 09 debt due was the most important one, because it was first, and would dictate further agreements being sucessful. Which I agree with. If they clear the first one, they will clear the next 2. You doubt they will outperform? Didnt you write yourself that they guidance was a joke of conservative? Now your doubting outperformance? You confuse me Brandon. Are you saying the guidance is conservative, or is it too high? Did you change your opinion on this stock? You sound like a seller/shorter now? Hope thats not true.
    Have a great day!!
    Reply
  •  
    Sep 28 11:10 AM
    O, and KTWALRUS, nothing is obvious in the stock market. AIG was trading at 20 days before its collapse. Stock price gave NO WARNING OF ITS DEMISE.
    FRE/FNM Up over 40percent before the government took them over.
    No, stock price gives NO indication of future sucess or failure.
    Washington Mutual failed because they bailout package wasnt passed fast enough for the FED, so they TOOK OUT WM. Of course they could of given them moeny to survive, but they DECIDED not too.
    Reply
  •  
    Sep 28 11:24 AM
    NEWS HEADLINE......Straight from the RELMOR JOURNAL
    Stock price hits. 50cents, bankrupcy police arrest Sirius satellite radio for having too low a stock price. They are forced into bankrupcy, against their will, even though they can pay their debt. Too bad, says the bankrupcy police, "Even though there debt obligations have been met, and revenue exceeds debt payments and all other costs of operations, we are seizing this company and screwing the common stockholders".
    You can force a company into higher interest payments due to stock price, but we all know that will not work this time, Sirius has the upper hand BECAUSE of the low stock price. No value left in it right now.
    So take your bankrupcy fears and begone, Relmor will have none of it. Facts dont dictate that action. Facts say otherwise.
    Reply
  •  
    Sep 28 11:27 AM
    If the Feb 09 debt is really not an issue, then the stock should be trading at more of a speculative value, much higher than these levels, even with 3 billion shares(which Sirius diluted) when XM came aboard(no value given to synergies, just worst case senario already priced in the stock price(under a $1 is pretty much saying this stock is doomed!!!!) If stock price dicates company sucess, than this company has no chance.
    Reply
  •  
    Sep 28 11:32 AM
    If it goes up 30 percent, they have a chance. No wait, it dropped 30 percent, there going bankrupt. OO, wait its up 10 percent, maybe not..
    Ooo,its down 15 percent, its going bankrupt...
    O wait , its at $1 again!!! This company WILL make it. O wait.....
    You see, I can do this all day. The MM are tanking this stock, like sl62 says, and thats the fact of this stock story. Plenty of buying interest to raise the SP many times at different points, only to be railroaded the other direction. NO VALUE has been allowed to enter the SP since GS, Sirius, and the banks in question colluded to screw the stockholder. Will they screw us again? Not when its trading at .80 cents, they cant. No value in the common, its going bankrupt, so how can their be? Either it is, or isnt, and then theres no value. You can dilute a doomed companys stock, unless your trading much higher than your worst case senario value. I dont see LEH issuing shares at .30 cents, do you? Did I see any stock offerings WM the last few weeks? Of course not, because people arent fools. So if Sirius diluates at these levels, than that proves manipulation. Thank you. No need to send me things in thanks, but my logic is sound, and I implore people to try to convince me otherwise, or prove my logic wrong.
    Reply
  •  
    Sep 28 11:39 AM
    Basically this is the story......
    If there is worry about further dilution of stock, then they are admitting its overpriced right now, and there is still tons of value left in it.
    You cant have it both ways.....
    Either it needs to be trading higher, or in fact it does have no value.
    If it has value, then the diluting entities will be more than happy to buy into the future of SATRD. If it doesnt, then they cant use the stock to dilute and SATRD will look to other ways to raise money.
    So basically what Im getting at is it proves incompetence if you say
    "worry about further dilution" and then say the company is going bankrupt. Why was Fannie and Freddie issuing preffered shares so close to going under, and being sucessfull? I seriously doubt those shareholders(other than banks who were forced to buy them) were given the reality of the situation. But we are, constantly, daily, over and over. This company is doomed, their stock is doomed, but BUY SHARES. You asking the converts a buy in to your common as insentive to buy their bonds. Bond holders to not buy bonds of failing companies. Ever. For any reason, intentionally. No one wants the uncertainty of getting paid or not, how much, and in what manner. You make a deal to see it to the end, or to convert to common if the stock and company are sucessfull. Then you dont want to be a debt holder, you want to be an owner. So to insist on a better convert price is basically saying, I expect this stock to take off, and I dont expect bankrupcy.
    Reply
  •  
    Sep 28 11:44 AM
    Its just sooooo funny,
    "Stock is doomed, company is doomed, market is doomed...."
    "Sirius worries that the convert price the GS is going to ask for will be too low, and would risk "further stock dilution..."
    Wait a minute.... This stock is doomed, and has no value. How can you dilute a worthless companies stock? OOOOO, unless its not worthless.... I get it.
    Hey, do you want to buy WM shares for $4? Didnt think so. How about at $1? Didnt think so. What about LEH at .40 cents? Didnt think so.
    Hey , do you want to buy some bonds from LEH? Convert price of .20 cents? Didnt think so.
    Must I go on? Or can I go back to sleep now. I dont like waking up to lies, but my job here is complete. I will ajourn. Have a great day!!!
    Reply
  •  
    Sep 28 12:03 PM
    I think SiriusXM better think hard before they file for bancruptcy because many subscribers own the common stock and will not continue to subscribe if they are screwed.
    Reply
  •  
    Sep 28 12:20 PM
    KT Walrus...

    You should go have drinks with Konst and all the others. Have a good time talking about your next investment. If you're long here, please jump, sell like GS wants you to and let's be rid of you. Goldman already knows which of their summer home renovations your money will be going to. Thanks and have a god one!
    Reply
  •  
    Sep 28 12:39 PM
    Relmor,

    Thanks for the sanity (and entertaining reads!). I thought we'd seen all the madness by now around here, but Tyler and Brandon have just gone to new lows. Wow...At first I didn't even post here because it wasn't worth the time to give to Brandon's article. Talk about insipid...sorry Brandon but huh? You really think the stock is a hold?? Appreiciate your advice (and the genius opinions of GS and ML!) Now we're giving credence and page space to the opinions of two failed investment banks who have an interest in seeing SIRI go down? And now we know Merrill most likely also has a short in on SIRI. Why else whould they chime in now? They're a FAILED INSTITUTION THAT ONLY STILL EXISTS BECAUSE BAC BAILED THEM OUT!!!

    People posting on Seeking Alpha: have you been locked in a closet the past two weeks? You have nearly lost everything you own because of decisions MERRILL LYNCH, GOLDMAN SACHS, BEAR STEARNS, LEHMAN BROTHERS AND MORGAN STANLEY made--those were their OPINIONS TOO (LOL)!!!! And you trust the contents of this article? Wow. And worse, you have the stones to make disparaging comments about long investors??? WHERE IS YOUR CRED???? Further do you mean to tell me that you are credible talking about how SIRI's P/E multiple is too high at 10 or 20 when all these investment bank pukes were leveraged 40:1???? They were leveraging YOUR VERY LIVES TOO BTW...SIRI is just tryng to deliver a good service to its consumers. What are you thinking???
    Reply
  •  
    Sep 28 01:13 PM
    Goldman wanted to get this out before the release of news this week by SIRIXM as they still greatly benefit personally from a lower PPS.

    So they want to dilute any positives that are released.
    Reply
  •  
    Sep 28 01:49 PM
    Joe F couldn't be more right...

    Does anyone think GS would let SIRI announce their new shared plan Oct 6 without Sachs issuing a negative and damaging report to counter? What a bunch of losers...
    Reply
  •  
    Sep 28 02:58 PM
    Remor................. thanks again for your insight and patience, you are a very great help, and a most valuable asset in keeping a whole lot of us in the loop with this great investment. You continue to amaze. I for one, tip my stetson to you. I'm looking to buy another 10k next week. Hope the price holds long enough to git er done..................... again thank you. killer.
    Reply
  •  
    Sep 28 02:59 PM
    sorry........... relmor
    Reply
  •  
    Sep 28 03:12 PM
    Relmor, thanks for the giving us a view of your thought processes relating to the company's value. Makes sense and its entertaining.

    We all know that the debt issue is the game changer for sentiment on this company. For Weinkes to stress May, 09 debt which is a credit facility that can be easily extended with its current banking partners, as a more relevant issue than the 40% GS held Feb, 09 convertibles is laughable. Their good payment history and no future reason to be concerned about default has me only worried about the debt extension cost for the May, 09 facility. Taking care of Feb, 09 debt will make May a less expensive proposition.

    I hope that we finally get an investigation into GS' motives. All 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 implemented 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.
    Reply
  •  
    Sep 28 03:17 PM
    Confusion on all of these issues may be a plan by the company to allow its future financing partners to get in on the ground floor in purchasing shares at this absurdly low price. I tend to not believe in conspiracy theories but may conspiracy is now defined as "brilliant negotiations".
    Reply
  •  
    Sep 28 03:32 PM
    You know, I was just saying to my wife in a joking manor that you watch when the Feb. coverts are taken care of, that they will move onto the ones due in May. I did not actually think anyone would have the balls to do it though.
    Reply
  •  
    Sep 28 03:48 PM
    One thing that we are all forgetting is that Mel is so rich and hangs out with the ultra rich that he REALLY CAN use his own money to bail the company out or atleast get a loan from his friends. Stay on em Relmor. Love the commentary kicking the analysts in the pants about their stupid calls on buying AIG, LEH, etc. Well, my Dawgs had one loss, but I guarantee you like SIRI XM, were just down not out. Auto loans appvd, bailout hopefully to be appvd, holiday season, rich CEO, a prior winner of media, early cycle pick up (autos can't get worse). Relmor, I'm with you. Maybe a few more days/weeks of pain, but then I think that we are at 2.50 to 3.00 by Jan 1, 2009. Get some!
    Reply
  •  
    Sep 28 03:50 PM
    You want to see something that really pisses people off. That this May credit issue now starts to be believed, after the Feb converts are taken care of. In a way I laugh at it even being considered the next BIG problem, and in another I get pissed that there are many that will believe it.
    Reply
  •  
    Sep 28 03:51 PM
    Oh, and one more point. GS are a bunch of bank tellers now, why are they still giving stock analysis? Maybe I'll pull up to the drive through window and ask my teller what she thinks.
    Reply
  •  
    Sep 28 04:41 PM
    163888, I couldn't agree more regarding the 5/09 debt expiration. Its two separate but related lines, one for $250 M and the other for $100 M, performing flawlessly. Why in these times, when paying your debt is in question for lenders, would you force the issue on a performing line of credit from a company that asks for new terms to extend? Doesn't make any sense and is just more "fodder" for the shorts to keep the price down. What I like to see happen with all the questions being raised about the Feb, 09 debt, is announcement that wipes out both concerns at the same time resulting an a reduction of debt outstanding from the cash pay down that Mel already said would happen.
    Reply
  •  
    Sep 28 04:46 PM
    888's,....... If the pay down of the Feb, 09 convertibles were $150 M, wiping out GS' interest of $127 M, it would be even better. Their total outstanding on these two "debt concerns" would get removed, the other $150 M due 09 gets rolled into May, 09 extension as an extension and increase in the line, and everyone looks in amazement at Mel's ability to close the debt issue down.
    Reply
  •  
    Sep 28 04:47 PM
    I know, I know, just a lot of speculation, but it has to go down somehow....
    Reply
  •  
    Sep 28 06:43 PM
    Gotta have faith in Mel...................... the Big Blue Dog is his dog.............. he loves him.............. he will find a way to save him............. faith. killer
    Reply
  •  
    Sep 28 10:27 PM
    What is happening here is stock manipulation nothing more. Sirius has overcome so many hurdles and downright bullies with power. The latest stock drop is a blessing for people who believe in and going long. Buy more, you will not be sorry. Do I have science behind my statement-no, I do not. Let's face it; bottom line is once you have Sirius you are addicted. It is radio for everyone; every flavor and every whim. How can a product that satisfies so many disappear? I guarantee that the very people that are shorting this stock are avid listeners. I can see Sirius XM being here for many, many years to come. I am a shareholder, but I am more of a satisfied consumer. I love it. Sirius XM has lived up to its name of being the Brightest Star when it comes to entertainment. It WILL be brightest for its shareholders as well, I have no doubt. GO MEL! Go Sirius XM.
    Reply
  •  
    Sep 28 11:09 PM
    Ok, lets get this over with. Im starting rumors with no founding.
    1. Sirius is going bankrupt.
    2 Sirius is going private.
    3. Sirius is getting bought out, at a low ball price.
    4 Sirius is getting bought out at a premium price.
    5. Sirius is striking a deal with Microsoft.
    6. Sirius is striking a deal with Apple.
    7. Sirius is striking a deal with Google. etc.....
    8. Sirius is going to dilute there shares further.
    9. Sirius is going out of business, period.
    10. Sirius can pay off the debt and renegotiate it sucessfully.
    11. Sirius cant pay off debt, cant find any lending, and current debt holders force liquidation of assets.

    Lets examine which of the above senarios is accurate.
    1. Sirius is going bankrupt, regardless of new debt, old debt, or whatever. This could happen if the economy goes into a long depression and there is no money for any discretionary spending. Since 70 percent of our economy is literally discrectionary, there is a massive depression, mass chaos, martial law, bank runs, and general terrible times.
    If Sirius goes bankrupt outright, in this senario, I wont care because I will be in the hills of the Colorado rockies hiding in a hole somewhere. Id trade my stock for some food and water at that point, and a gun maybe. Thats if the FED cant create another inflationary cycle. They either will, or it will be so ugly you will forget you had shares of anything.
    2. This is good. Stock is much harder to manipulate if its not publically traded. This might be good for the common in the long run, and I would welcome it(cant get much lower, why not)
    3.After fighting the FCC, the DOJ, the NAB and analysit, Jim Cramer, and the banks, the board GIVES in and accepts a low ball price. Therefore wasting EVERYTHING done till that point. That would mean Mel's legacy is ruined, all existing debt holders now must deal with new management(of get payed off in one chunck(probably not perferable(why they choose a convertible bond in the first place) and are left out to dry. Not a likely senario unless they cant get financing. Which I will come to later. So as a seperate possiblity, I doubt it, plus they run the risk of a proxy vote, sharehodler.....
    Ooops I'll finish later, Dexter is on. Got to go.
    Reply
  •  
    Sep 29 01:04 AM
    I WILL SAY THIS AGAIN AND AGAIN!


    TO SAVE THIS STOCK THEY NEED SUBSCRIBERS!

    BUY YOUR SELF A SIRI OR XM RADIO AND SUBSCRIPTION!

    THE HIGHER THE NUMBERS THE FASTER THEY WILL PAY OFF THE DEBT AND THE MORE SUBSCRIBERS THEY SEE, INVESTORS WILL SEE TOO!


    BUY A SUBSCRIPTION TO SIRIUS XM! IF YOU CARE ABOUT YOUR INVESTMENT! TELL ALL UR FRIENDS TO GET ONE!
    Reply
  •  
    Sep 29 02:53 AM
    Shareholder revolt.
    Sirius gets bought out at a preminum, I could live with that.
    6. Mergers...Good for the stock.
    Other issues ive addressed. And the last issues are fear driven and hope driven.
    Reply
  •  
    Sep 29 03:41 AM
    cos1000, I know this sounds ridiculous, but I think Mel is so mad at GS that they might be willing to do the converts on the other ones, but will not do it for GS. Now that is just my opinion but we'll see. I mean the good news about GS get their converts redone would be that everyone then should know for a fact that the rest of the financing will get done. GS has a reason at that point to make sure SIRIXM succeeds. As I said before, just a sideways look at it.
    Reply
  •  
    Sep 29 04:22 AM
    KennyG, do you have any facts to present, educated opinions, or enlightened conversation? Or did you just need someone to cry to? Let me know, I'll be here. I have plenty to do.
    Reply
  •  
    Sep 29 11:15 AM
    TO SAVE YOUR INVESTMENT BUY A SUB TO SIRIUS XM!




    TELL YOUR FRIEND TOO!
    Reply
  •  
    Sep 29 03:16 PM
    relmor you seem to have the answers, if so clear up the fact that how my comment was removed from the blog. you are still a JERK>!!!!!!!!!!!!!
    Reply
  •  
    Sep 29 09:37 PM
    " . . . past performance is no indication of future results." I always laugh when I see that phrase. It has to be one of the most mindless things that you will ever see. Probably the guy in Green Bay who traded Brett Favre, was saying the same thing, just before Favre threw 6 touchdown passes on Sunday. lol
    Reply
  •  
    Sep 29 09:40 PM
    Oh yeah, forgot to ask. Where are all the guys who said .68 was the rock bottom? Maybe it was just a sandy bottom?
    Reply
  •  
    Sep 29 09:43 PM
    ktwalrus: wow, are you an apostate here my friend! lol
    Reply
  •  
    Sep 29 09:47 PM
    relmor, sorry to be playing catchup here, but if you want a predicting mechanism, don't look at stock price, but look at a company's debt and how it trades. While AIG stock was still relaitvely high, no one would take it's debt, or credit default swaps. that's how the govenment knew it hd to step in.
    Reply
  •  
    Sep 29 09:54 PM
    killerkaul "great investment"???? Nobody who owns the common has made money on it in years, they don't pay a dividend, most shareholders are 25% to 75% underwater and you call this a great investment????