Saturday, October 28, 2006
October 28, 2006
What happened Friday to send XM satellite radio up over 10%? Where did tuna’s report come from?
I received several e-mails and phone calls about this, and once again caution all readers that I am not a financial advisor. I follow these equities pretty closely, and have opinions as to what happens, but I do not offer financial advice. That being said, the answer is not really very simple, and could likely be several things. In my opinion here are some items that could have contributed:
When Clear Channel announced that they are now up for sale, and competition from satellite radio was among the reasons, I felt that this could set a bottom for both Sirius and XM. Clear Channel is the big boy on the block, and their actions at least give credibility to the business model of satellite radio. This is not enough for a reversal for satellite radio, but could well be enough to establish a bease.
If any of what I stated about Clear Channel resonates with you, you should now consider this. XM Satellite radio has taken a bigger beating this year than has Sirius. Many people still trade these equities on enterprise value and market cap. There are many who feel the current gap is to big. This means that either Sirius needs to come down, or XM needs to come up. Sirius, having momentum in subscribers over the past year stayed in place. XM saw an appreciation. If this is indeed part of a reason, then as soon as XM narrows the market cap gap a bit more, Sirius could begin to follow suit.
Another possible reason rests with YEAR END issues. Many mutual funds have an October year end. If these funds were going to sell off to take their lumps, the sales would need to have been completed by last Thursday. This gives 3 days for accounts to “settle”. At that point, these same selling funds may jump back in. Earlier in the week, there appeared to be a seller of XMSR. Typically, once the selling pressure is removed, an equity responds by trending back up.
Merger and buyout speculation. This flame on this fire has dimmed over the past couple of weeks, but it is not gone. Speculators who believe some sort of buy-out is in the works could see a nice score if a deal comes to fruition.
Technical trading. XM hit what appeared to many as a bottom on Wednesday of this week. Many technical traders will jump in at support levels such as these in hopes of riding the Q4 wave upward. Those that hopped in in the 9’s or low 10’s have made a great trade.
Now to the S & P note issued by Tuna.
This report struck me as a bit odd. If I am not mistaken, S & P had an $8 target on both Sirius and XM until Friday. Just as Sirius was on the cusp of breaking through the 50 day moving average, an S & P downgrade of Sirius crosses the wires. The downgrade was from “Strong Buy” to “Buy”, and the price target was reduced from $8 to $5.
What I found odd about this was that it was not a report from Tuna. Instead, it was a 1 paragraph note that cited issues with XMSR having a negative impact on Sirius. It seems odd that such reasoning is cited as the basis for the issuance of a note that hits the street on a Friday afternoon. Perhaps the matching price targets were not justified, and it would be more odd to issue an upgrade to XM just prior to earnings. Either way, there seemed to be no indication that Sirius is doing anything wrong in the eyes of Tuna.
Was this report enough to temper the rise in Sirius’ PPS. It would appear so. The next week will be interesting to say the least.
Of the two equities, there are some compelling reasons why XMSR could represent more upside in the short term. This is not to say that a trade in Sirius is not as good as XM. The reasons that each represent good trades differ. When a sector takes a beating, and if that beating is more than it perhaps should have been, there is always some upside room.
I would also caution that both Sirius and XM will be doing their respective Q3 calls in the coming days. Both companies will announce losses, and these calls could temper the happy attitude we saw on Friday. This is not to say that the Q3 financials are the measuring stick of SDARS. The more important aspect of these calls it what is happening going forward, and how the financial metrics will be as time passes.
In my opinion, there is upside available in both equities. The process will differ slightly from the past, but if you believe in SDARS as a concept, your reward will come.
10/28/2006 10:52:00 PM
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