Monday, May 08, 2006

Forbes, Bank of America (again!)

May 8, 2006

This is a reiteration, but in case you are wondering about today's trading...this just hit the wires (Jacoby is at it again!)

Market Scan

XM Looks Undervalued Maya Roney, 05.08.06, 1:01 PM ET

Despite recent industry issues, Banc of America Securities continued to recommend XM Satellite Radio over Sirius Satellite Radio, citing a "depressed" valuation.

"Our results suggest that Sirius trades fairly close to our base case equity value estimate of $5, while XM trades well below our 'bear' case value estimate of $22 per share," wrote analyst Jonathan Jacoby in a research note Monday. "XM’s current stock price implies 69% upside to reach our base case."

In addition, Jacoby believes XM "has the better mousetrap" with greater OEM share, incremental spectrum and a more leverageable expense model.

Last quarter, the analyst highlighted fixed expense creep as an emerging issue -- and his concern has only grown following first-quarter results. Both Sirius and XM beat the analyst's cash earnings estimates, but Sirius widened its cash loss guidance to $565 million from $540 million and XM’s guidance was unchanged.

Jacoby attributes much of the recent fixed expense creep to intensified competition. "XM and Sirius need to be as concerned with the economics of the satellite radio business model as they are with competing for subscriber market share," said the analyst. "In order for the stocks to move higher, we believe investors will need evidence that expenses are under control."

Inquiries from the Federal Communications Commission and the Federal Trade Commission and the Perform Act could negatively impact both companies, Jacoby added, but he believes these issues are "mostly noise" at this stage.

The analyst has a "buy" rating and $30 price target on XM Satellite Radio and a "neutral" rating and $5 price target on Sirius Satellite Radio .

In its coverage of radio and television broadcasting, Banc of America's top pick is Univision Communications, rated "buy" with a $40 price target. Its least favorite is Citadel Broadcasting, rated "neutral" with a $9 price target.

5/08/2006 02:04:00 PM

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