Robert Peck Gets Bullish On XM
August 22, 2006
Highly respected analyst Robert Peck has gotten bulliosh on XM Satellite Radio. Peck has been following the satellite radio sector for quite some time, and is among the more respected opinions regarding the satellite radio equities.
In a report issued this morning Peck upgraded XM Satellite Radio two positions, taking the equity straight from "underperform, bypassing "neutral", and landing on "outperform".
Report Excerpts:
CATALYSTS ON THE CUSP OF CHANGING.We believe that the wave of negative catalysts that have plagued the company over the previous months has finally subsided; in fact, we believe the company is about to experience a positive wave of catalysts, led by the impending FCC authorization for their devices.Here at SSG we agree that the wave of bad news is likely behind XM Satellite Radio, and the remaining issues that might be considered negative can be shown to be very workable.
UPGRADING TO OUTPERFORM. After the precipitous decline in XMSR over the past three months, we believe that the market has over-adjusted for the concerns in the marketplace. This, coupled with our expectation that the catalysts are about to change for the company for the better, leads us to upgrade to Outperform from Underperform.At SSG we have felt for some time that the equity has been oversold. The reaction to beach piece of bad news took a toll on the stock price over a period of 6 months. Many of those issues have had resolution, or there is a path towards resolution in place. As positive news develops, and financial metrics prove to be on the correct path, the appreciation in share price should follow suit.12 INVESTMENT POINTS SET THESIS. In the text below we walk through 12 Investment Points which support the change in our thesis on the company, including:
survey work showing continued strong demand, our anticipation that guidance will be raised, and a bolstered management team.Over the past few months, a sentiment relative to a weak demand of satellite radio formed. Sales figures have shown that the sector is still healthy, and despite some issues with inventory, the sector can remain strong. With OEM installs ramping up, satellite radio becomes more widely available in that channel. The overall picture still looks very healthy.CONSERVATIVE MODEL. Our new model is built conservatively, estimating: 16.5 mn subs by 2010 (vs. XM's expectation of high teens), declining OEM conversion rates, modest retail market share, higher churn rates, minimal ARPU growth, and lower SAC deceleration. Here at SSG we like the conservative model formulated by Peck. Because of the respect he garners in this sector, it now sets a reasonable bar for achievement while still showing that satellite radio is viable. Exceeding these conservative metrics would bode very well for XM and the sector. VALUATION & CATALYSTS. Our 2007 target price of $17 is based on our DCF valuation and supported by discounted EPS and FCF/Share analyses, as well as a Sirius EV/Sub comparative basis, all of which yield valuations in the $17-$18 range. We would expect a FCC approval to be followed shortly by manufacturing and shipment in volume in plenty of time for the big 4Q season. An improved marketing team coupled with the demand indicated by our survey work, indicates a rebound in the 4Q for the company.Overall this report was well done and carries a lot of detail that many investors may not have considered. We encourage investors to visit Bear Stearns HERE
8/22/2006 09:36:00 AM
SSG Has Merged. You Can Read All Of The Latest SSG Content By Clicking Here
0 Comments:
SSG is not a Financial Advisor. Read Disclosure: HERE
--------------------------------------------------------
