Wednesday, January 31, 2007

Dissapointment Outweighs Positive News

January 31, 2007

With XM Satellite Radio announcing a long term factory install relationship for factory installed satellite radios in Honda and Toyota one would think that the news would have set a spark underneath the equity. Especially considering the big jump that came to the market after the fed made his announcement.

No Dice!!!!

Clearly the shine of satellite radio has dimmed, and only major news or several quarters of outstanding financial performance will seem to lift either Sirius or XM.

New content like Jamie Foxx. Great for SDARS, but nary an impact on the equity.

Honda through 2016. Great news for SDARS, but no impact on the equity

Toyota through 2017. Again, great news and no umph to move the price of the stock.

THE ONLY NEWS THAT HAS MOVED THESE EQUITIES IS MERGER NEWS.

It seems that the street has accepted that great talent will come to SDARS, and that OEM installs will become more common. This news carries no impact anymore. The Street is looking for something bigger and better, and only a track record of good financial performance as "stand alones", or a merger announcement will do the trick. At least that is how things look now.

If investors have to wait for the financial performance of these equities to bear out, it could be a very neutral year for satellite radio stock prices. It will take an established track record of lower losses, and a crystal clear path to profits, and that only comes by stacking three or four quarters in a row were the bottom line looks good.

So, what is happening on the merger front? As of now things remain the same. Analysts and investors alike share opinions on whether it will happen, and given the number of reports, investors see a pile of gold at the end of the merger rainbow. It is little wonder that other news seems to take a virtual back seat.

In my opinion, if a merger is being considered, the deal should be announced sooner rather than later. Merger news could breathe fresh life into these equities. Synergies would start to be considered, and the dollars expended on competing with each other could instead be used in promoting the concept of SDARS on a much broader scale.

Investor sentiment seems to be quite clear, and investors should make efforts to stay on top of the news. The risk here is that there is an anticipation that news on a merger may be forthcoming. So far that has been enough to limit the down side of the stock price. Should definitive information for a merger be announced, we would see instant appreciation in stock price in my opinion. The danger here is that if definitive information against a merger is delivered, I can picture some very tough trading days. With a merger sitting in the balance, it makes it a bit tough to go long or short these equites.

It is a shame that positive news is no longer enough stabilize the SDARS equities, but that is the environment that Sirius and XM are in these days.

Labels: merger, sirius, xm