Jacoby Analysis Equals Shareholder Frustration
June 20, 2006
If you follow satellite radio, the name Jacoby is likely very familiar to you. Jacoby, an analyst for Banc of America has been following Sirius and XM for quite some time, and his reports often find their way into publications on a frequent basis.
Jacoby has for the most part been a bigger "fan" of XM Satellite Radio than he has been Sirius. Investors in Sirius have often expressed frustration at his reports, where he somehow always has seemed to take shots at the equity.
Looking back at his analysis, one begins to wonder whether Jacoby has been compounding one mistake with another, and another.
On January 6, 2006 Jacoby carried a "SELL" rating on Sirius with a price target of $5.50. At the time Sirius was trading at $6.45. In the same report he had a "BUY" on XM with a price target of $36. XM was trading at $27.95 at the time. Jacoby cited that XM had a weak Q4 "due to weak auto sales". Auto sales in Q4 had nothing to do with the weak OEM number posted by XM. The issue at hand was the promotional sub deactivations from the HUGE June and July "Employee Discount" promotion run by GM.On February 17, 2006 Jacoby once again maintained his "BUY" rating on XM satellite Radio. He once again lowered his target by taking it from the $36 target a month prior to $33. XM satellite Radio closed at $21.57 at the time. Jacoby cited the recent resignation of Board member Roberts as a part of his reasoning, but then went on to state that he saw "positives that have been overlooked", "expects expenses to drop in the first quarter of 2006 and expects market share to trend up as the Stern effect wanes for Sirius Satellite Radio". Jacoby recommended investors buy XM stock while it is at depressed levels stating, "We have little doubt that the competitive nature of this business has changed long-term value, but at these levels the concerns are more than discounted, in our opinion.
Jacoby maintained a "SELL" rating on Sirius with a price target of $5.50. Sirius closed at $5.27 that day.On May 8, 2006 Despite recent industry issues, Banc of America Securities continued to recommend XM Satellite Radio over Sirius Satellite Radio, citing a "depressed" valuation.Jacoby stated, "Our results suggest the 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. "XMÂs current stock price implies 69% upside to reach our base case."In the report Jacoby stated a "BUY" rating on XM with a target of $30 and a "NEUTRAL" on Sirius with a price target of $5. XM was trading at $17.48 and Sirius at $4.72.Now today Jacoby issued a report indicating that retail demand for satellite radio has slowed. He cites high gas prices, lack of advertising, and slow MP3 sales to his opinion. Jacoby is lumping satellite radio together as a whole in this piece, and failing to acknowledge that the two companies, Sirius and XM are seeing different results. Jacoby states that Year-over-year satellite radio growth has slowed to 6% in May and 9% in April, down from 26% in March. This is true based on NPD Data, but he fails to point out that Sirius is seeing substantial year over year growth, while XM has dipped into negative territory. XM satellite Radio has cited retail sales as a concern....Sirius has stated that they are not seeing an issue with retail sales.Jacoby has now lowered his price target on Sirius from $5.00 to $4.50. He also lowered hexpectationsons on XM from $25.00 to $22.00The question many have been asking is whether or not there has been some sort of ongoing agenda relative to XM and Sirius with Jacoby. Both equitiestes have been beaten up substantially since the beginning of the year, but XM has taken a bigger haircut than Sirius. Investors that to listened to Jacoby's advice on Sirius will have not lost anything at this point.......They would have sold at $6.45 back on January 6. By contrast, investors in XM that took the advice of Jacoby would have a high level of frustration, having riden the equity down from $27.95 to current levels of $13.28 (a 53% trim in price).Compounding that frustration for XM shareholders is that Banc of America was selling shares of XM throughout the time frame that Jacoby was recommending a "BUY".
Compounding frustration for Sirius shareholders is that Jacoby seems to find any opportunity to cast Sirius in a negative light, and that he is assigning XM's problems to Sirius.
Compounding overall frustration is that these opinions by Jacoby typically get to investors in the form of articles that do not include any disclosures. Lately that vehicle has been Forbes.com. Analysts write reports, and include full disclosure on those reports. Those reports are distributed to the media, who then take excerpts from those reports and publish them WITHOUT the original disclosures. If you were a shareholder in Sirius or XM wouldn't you want to be aware of the positions (or lack of positions) that the investment house had in the equities being reported on????? Try to call the companies involved, and everyone points the finger to the "other guy".
Investors that read pieces quoting analysts should seek out the original report that includes all disclosures, or contact the publication or investment bank to obtain the disclosures.
6/20/2006 12:18:00 PM
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