Maxim Group Senior Media Analyst John Tinker issues a new research note offering a Sirius XM Radio (NASDAQ:SIRI)?earnings preview, reiterating a BUY rating and $2.20 price target on the equity. Tinker previously upgraded his price target from $1.80 to $2.20 on February 16th following Sirius XM?s Q4 results. He anticipates the company to report Q1 results during the last week of this month or the first week in May.
We continue to recommend the stock with a price target of $2.20, a multiple of 20x estimated 2012 estimated free cash per share of $0.11. The?stock is currently trading at 17.9x 2011 EV with a long term EBITDA growth rate of 24%. We are anticipating a share buyback as free cash?flow grows. Liberty Media (NASDAQ:LCAPA) is in the wings with its 40% holding and appears to be interested in increasing its stake if SIRI slips and accessing?the $8 billion NOL.
? John Tinker,?Maxim Group Senior Media Analyst
While Tinker notes that it is not unusual for SIRI to trade up going into earnings and then subsequently fall on the reported results, he sees the main overhang being the ?uncertainty of car production given?the problems in Japan and the potential slowdown in car sales given the recent increase in gas prices.? He observes management taking a cautious stance, but believes they would like to beat that.?
While Sirius XM company guidance forecasts full-year EBITDA of $715 million on 12 million vehicles sold, Tinker estimates full-year EBITDA of $740 million on 13.1 million vehicles sold. Tinker expects General Motors (NYSE:GM) and Ford (NYSE:F) to push auto sales hard to attempt to regain market share from?Toyota (NYSE:TM). Tinker saw March auto sales with a 13.1 million SAAR, up 12% year-over-year, as being strong, although carrying a slightly lower SAAR than?February?s 13.4 million.
Commenting on the recent lawsuit filed by Howard Stern?s production company,?One Twelve, Inc., and his agent Don Buchwald against Sirius XM, Tinker said that the lawsuit surprised the company, as well as Wall Street, especially after all the months of negotiating Stern?s new five year contract. ?We?similarly assume that the XM bankers who agreed to take SIRI stock in the merger and the SIRI auditors who will have read the contract and?who annually sign off on contingent liability are also surprised,? Tinker added. That being said, He sees this contractual lawsuit being resolved ?relatively quickly.? Tinker believes the worst case scenario would have Sirius XM paying out $330+ million to Stern, which he says is embarrassing but manageable given the company?s?fully diluted market cap of $11.9 billion.
Tinker expects Sirius XM to report Q1 ARPU of $11.81, up $0.01 quarter-over-quarter and up 2.9% year-over-year. Noting that Sirius XM?recently?lowered the?music royalty fee from?$1.98?to $1.40 for 60% of its subscribers, he doesn?t see ARPU ramping up again until a potential price increase later in the year,?subject?to the FCC waiving the pricing freeze placed on the company at the time of the merger.
Maxim Group Senior Media Analyst John Tinker will be the special guest on?Playground Radio tonight, Wednesday, April 20th, at 8:00PM Eastern, for an exclusive, live interview.
John Tinker, Maxim Group Senior Media Analyst
Mr. Tinker has worked extensively in the media business as an equity analyst, private equity investor and fund manager. Prior to joining Maxim, he managed Steamer Capital, an investment firm. From 1996-1998, he was Managing Director at Sandler Media?s private equity fund. Previously, Mr. Tinker was the media/internet/entertainment analyst at ThinkPanmure, where he was the only analyst to recommend Google at its IPO price. In the 1990?s he co-founded Montgomery Securities (now Bank of America) media & communications division after stints at Furman Selz and Morgan Stanley. He graduated from Exeter College, Oxford University with an M.A. in Politics, Philosophy and Economics.
John Tinker will be interviewed these evening by Satellite Radio Playground?s Demian Russian. Following tonight?s interview with Mr. Tinker,?Michelle Krebs, Edmunds.com Senior Analyst and Editor-in-Chief of AutoObserver.com, will be discussing auto sales and her thoughts on what the impact from the recent tragedy in Japan may have on the auto industry.?Tonight?s episode of Playground Radio will be available to be streamed live via the following link:
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Disclosure: Long SIRI
Contact the author:?DemianRussian@SatelliteRadioPlayground.com
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