Satellites crash to earth


Only figuratively. Goldman Sachs analyst Mark Wienkes already had sell recommendations on both Sirius and XM, but he lowered his price targets for both and declared that “any ‘imminent merger’ related strength has passed.” Both fell sharply in yesterday’s trading.

The headline that Fortune magazine’s website used for its story on Wienkes’ report probably didn’t help either: “XM and Sirius circle a black hole.”

For investors, the analyst noted a unfavorable risk/reward situation in the satellite radio stocks. “We are lowering our 6-month price targets for XMSR and SIRI shares to $6.50 and $1.75 from our previous targets of $11.50 and $2.25, and maintaining our Sell and Conviction Sell ratings on the shares respectively. Our $1.75 SIRI price target is reflective of merger synergies with our SIRI price target at $1.00 on a stand alone basis. While the FCC draft circulation signaling the merger’s likely ultimate conditioned approval generated a short-term lift to the stocks, we think any ‘imminent merger’ related strength has passed. Going forward, valuations should be driven by the closing of the fundamental disconnect between the ~$9.1 billion in industry enterprise value and the consistently declining cash flow estimates that are, in our view, insufficient to justify valuations, even giving credit for merger synergies,” Wienkes told clients.

The Goldman Sachs analyst warned of continuing weakness in retail sales of receivers, diminished auto production the second half of this year reducing the OEM channel and rising churn metrics as negatives, regardless of whether or not the long-pending merger takes place. He was also concerned that younger demos are losing interest in satellite radio, in favor of MP3 players and other alternatives.

Wall Street traders certainly took notice of the negative analysis. Sirius ended the session down 12.4% at $2.13 and XM off 17.1% at $8.61.