They're Not All Fans of Sirius XM

The analyst loving couldn't last forever at Sirius XM Radio (Nasdaq: SIRI).

Miller Tabak's David Joyce is downgrading the satellite-radio giant -- from "buy" to "neutral" -- fearing that the stock is already approaching his one-year price target of $1.25 a share.

Until this morning, Wall Street pros had been revising their share-price goals higher. Barrington Research's James Goss bumped his target from $1.25 to $1.50 last week. Maxim Group's John Tinker initiated coverage last month, setting his sights on $1.40.

To Joyce's credit, he was an opportunistic bull during the media company's darkest hour. Shortly after Liberty Capital's (Nasdaq: LCAPA) bailout, he aggressively upgraded his near-term price per share target from $0.30 to $0.50.

He was certainly right then. Is taking a step back the right approach now?

Joyce is arguing that Sirius is now overvalued. The stock has nearly doubled this year and has appreciated several times over since last year's bottom. He argues that Sirius XM is trading at an enterprise value that's a steep 27 times the $380 million in operating profits he predicts for next year. It's a significantly higher multiple than other subscription-based content models.

Valuation is an issue. Armed with roughly $3 billion in long-term debt and 6.4 billion fully diluted shares outstanding, an enterprise value greater than $10 billion is not for the timid given Sirius XM's revenue, margins, and growth.

However, it's also not fair to simply compare Sirius XM to satellite television heavies DirecTV (NYSE: DTV) and DISH (Nasdaq: DISH), who compete against Comcast (Nasdaq: CMCSA), AT&T's (NYSE: T) U-verse, and other discounting cable and broadband television providers. Sirius XM is the only game in town when it comes to premium radio. It will have more pricing elasticity once its FCC-mandated rate freeze thaws out next year. We still can't even begin to assess the revenue-generating potential of its Sirius XM 2.0 platform that will roll out a year from now.

Yes, Pandora Music and Apple (Nasdaq: AAPL) compete with Sirius XM for eardrums, but they have each managed to grow their audiences nicely over the past few years.

The surface is just starting to get scratched. If in five years Sirius XM is a satrad provider reaching out to 23 million to 25 million subscribers paying less than $20 a month for premium radio, today's enterprise value of $10.6 billion would certainly seem frothy. However, until Sirius XM proves that it can't do more than follow its current steady growth trajectory, it's dangerous to bet against it.  

Is Sirius XM overvalued? Share your thoughts in the comment box below.