It's almost time for a fourth-quarter financial update from one of the satellite-radio broadcasters that's been in the news this week -- XM Satellite Radio (NASDAQ:XMSR). Let's tune in and check out what's on the schedule.

What analysts say:

  • Buy, sell, or waffle? Of the 19 Wall Street firms covering XM these days, 15 of them are buying, and the other 14 holding, with no recorded sell recommendations. The mood in our Motley Fool CAPS community is rather different; nearly half of 800 players with an opinion agree that it's an underperformer, and it's rated as a one-star stock (out of a possible five).

  • Revenues. The average forecast is for $243 million, up from $177 million a year ago.

  • Earnings. The average analyst expects a $0.71 loss per share. That's at least an improvement from last year's $1.22 loss per share.

What management says:
In the last earnings call, CEO Hugh Panero said that his team knows "where the challenges lie and are addressing them systematically; one by one, day by day, with an eye to making it easier for customers and partners to do business with us, generating profitable growth and, of course, value for our shareholders." The same goes for market opportunities.

Apparently, one of those opportunities involved teaming up with the competition, as a merger with Sirius (NASDAQ:SIRI) was announced earlier this week.

What management does:
Most of the margins are at least heading in the right direction -- except for the free-cash-flow metric. Last fall, XM prepaid $237 million of liabilities to General Motors (NYSE:GM) for three years' worth of installations for the co-branding deal, which put a serious damper on trailing cash flows for a while.

Margins

9/05

12/05

3/06

6/06

9/06

Gross

22.2%

27.4%

30.6%

33.8%

37.5%

Operating

(129.5%)

(99.5%)

(82.6%)

(67.2%)

(53.5%)

Net

(126.3%)

(119.4%)

(104.9%)

(101.6%)

(85.6%)

FCF/Rev.

(75.7%)

(62.4%)

(57.0%)

(90.3%)

(81.9%)


XM is supposed to be an exciting growth company, the kind of investment where you want to see a growing Return on Equity (ROE) trend along with increasing revenues. It delivers on the sales count, but mounting losses have led to a nearly negative shareholders' equity position lately, which explains the monstrous ROE.

9/05

12/05

3/06

6/06

9/06

YOY Rev. Growth

138.3%

128.4%

118.3%

103.5%

83.8%

TTM Return On Equity

(173.6%)

(319.7%)

(599.4%)

(781.0%)

(13,474.9%)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
I, for one, will welcome our new combined satellite-radio overlord. Despite repeated efforts, I could never quite learn which company had Oprah and which one had Howard Stern. And how about baseball or football? Ah, forget it. The dynamic duo hasn't committed to a combined programming slate yet, but they would be silly not to take that step.

The deal also makes a great deal of financial sense, provided the regulatory hurdles are crossed. XM just launched its fourth satellite, and these things are expensive. Co-opting each others' equipment will bring plenty of cost savings.

As for this quarter, the question is whether satellite-radio systems and subscriptions made it into Santa's delivery bag as often as Apple's (NASDAQ:AAPL) iPods and iTunes gift cards. That's the real competition here, no matter what companies like Clear Channel Communications (NYSE:CCU) and Cox Radio (NYSE:CXR) would like you to think.

XM is a former Motley Fool Rule Breakers recommendation. Why did the chicken cross the road? Grab a 30-day free trial and find out for yourself.

Fool contributor Anders Bylund holds no position in any of the companies discussed here, and he's jamming to some Swedish progressive rock. You can check out Anders' holdings if you like, and Foolish disclosure sounds great in digital fidelity.