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Sirius XM Radio (Nasdaq: SIRI ) got a boost form a positive analyst note today.
Barclays Capital analyst James Ratcliffe is feeling more upbeat about the only game in town when it comes to satellite radio. Ratcliffe's rating on Sirius XM is going from Underweight to Equal Weight. Yes, "Equal Weight" is the equivalent of a neutral rating, but it is a bold step for an analyst that was suggesting that investors short Sirius XM in the past.
OK, so technically Ratcliffe wasn't telling investors to blindly bet against the company itself. He has suggested buying Liberty Media (Nasdaq: LMCA ) as a way to cash in on Sirius XM at a discount and shorting the exposure equivalent of Sirius XM shares. In other words, it would be an arbitrage play based on the narrowing discount between the value of Liberty Media's effective 46.2% stake in Sirius XM and the actual market value of the stock.
However, now that the gap is narrowing and Sirius XM's own fundamentals continue to improve, Ratcliffe is singing a slightly different tune.
Ratcliffe isn't perfect. He discontinued coverage of Sirius XM three years ago at the worst possible time, just as the stock was bottoming out in early 2009.
The stock went from roughly $0.10 a share at the time to better than $2 when he reinitiated coverage with a bearish rating and a $2 price target earlier this year. We're talking about a 20-bagger in that time.
It's still better to be right late than not at all. His new price target on Sirius XM is $2.25.
Ratcliffe is still feeling better about Liberty Media than about Sirius XM, upgrading those shares, too, today. He sees Liberty Media eventually taking either de facto control or a majority stake in Sirius XM. Liberty Media would then use a Reverse Morris Trust to spin off the unit to its shareholders in a tax-free transaction.
Some may argue that a glut of Sirius XM shares on the open market would slam the stock, but Ratcliffe sees aggressive share repurchases on the satellite-radio provider's part if that happens.
Sirius XM continues to grow up, and that's going to be a boost for the believers.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next Rule-Breaking multibagger, a free report reveals all.
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Report this Comment On July 17, 2012, at 9:58 AM, doubting wrote:
Ratcliffe and co. are hypocrites. I can recall that one of these expert analysts (do not remember the name but stand by his statement) said two years ago that if auto sales hit 15M he would establish siri price target at $3.75. This was TWO YEARS AGO. I do not see anything close to it.
This year we expect auto sales about 14.3M although if the second half is going to be as good as the first one we will see over 14.5. I see no reason why this is not going to happen with such pent up demand. What is even more important is that Sirius XM is getting to its pre-recession subscriber quarterly gains. The company has a good chance to hit 2M subs in 2012, the year when everybody was in limbo because of the price increase.
Mel just announced 622K new subs in Q2. This is a very strong number but not totally unexpected based on Q4, 2011 550K gains. Only Ratcliffes can ignore the trend the company is building by assigning it only equal weight. The combination of continued OEM growth, used car market penetration and sat radio 2.0 may bring about sub growth results between 2.2M and 3M starting 2013. This will be a lethal blow to all these Doubting Thomases (pay attention to my pen name "Doubting" that I picked to fight all these prophets predicting siri's doomsday) and siri stock manipulators.
What is even more important is that Mel increased revenue projection by $100M to $3.4B for 2012. Revenue is the most challenging target to increase for the company because the only way you can do it if you have very strong growth. Last year, for example, Karmazin increase all metrics several times... but not the revenue. The company has a huge potential in terms of growing EBIDTA, profit and fcf due to be realized merger synergies, including contract renegotiations, programming savings; reduced capex spending and lower interest payments but revenue can grow robustly only with very high new sub acquisitions. Hopefully, ad revenue will double in the next couple years because siri is getting to a critical subscriber mass when advertisers would feel an amazing opportunity of pitching to mostly high quality customers.
To conclude, few of these geniuse analysts truly comprehend the beauty of siri business and its huge potential. Time for them to sober up is running out. Sirius XM is going to be the company of this decade. Mark my word!!!
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