Tuesday, April 24, 2007

Stanford On SIRI - More Detail

April 24, 2007

Fred Moran of Stanford downgraded SIRUS today to HOLD with a $3 target, 1Q sub additions 420,000:

Sirius Satellite Radio Inc. (SIRI-Hold, $2.80 Target $3.00)

SIRI: Soft growth, no catalyst.

· Sirius will report first quarter 2007 results on Tuesday morning, May 1st. We estimate Sirius may add 420,000 net additions during the first quarter. We are lowering our rating to Hold and our target from $5 to $3 to reflect the soft satellite radio subscriber growth.

· Management will host an 8:00am ET conference call on Tuesday, May 1st. The dial-in number is 800-819-9193.

· Sirius could end the first quarter with 6.4 million subscribers, up 58% year over year. Sirius should continue to lead the satellite radio industry in subscriber growth, but Sirius’ 2007 subscriber growth could drop to 34% year over year.

· We estimate first quarter revenue of $215 million, up 69%. Cost per gross add could rise to $121 causing a first quarter oibda loss of $47 million and an EPS loss of $0.09.

· XM and Sirius have proposed a merger of equals. XM holders will receive 4.6 shares of Sirius stock for each XM share they hold. While a satellite radio merger could uncover substantial cost savings, it may take six months to hear from regulators and well into next year to start unlocking merger synergies.

· The merger faces significant regulatory scrutiny from the Federal Communications Commission and the Department of Justice. Stanford policy analyst Paul Gallant believes there is a 60% chance the DOJ will sue to block the merger. The transaction is slated to close by yearend.

· Our 2007 estimates forecast $959 million of revenue and oibda loss of $178 million. EPS may be a loss of $0.37. For 2007, we estimate that Sirius could add 2.1 million subscribers, bringing its total to 8.1 million, up 34%.

· Our new $3 price target reflects more moderate near-term growth in satellite radio. Sirius trades at 5x 2007 estimated revenue and $640 per our 2007 subscriber estimate of 8.1 million. By comparison, XM’s valuation implies $530 per subscriber and 5x 2007E revenue. Our valuation is based on the present value of future subscriber growth and free cash flow potential.

· We rate Sirius Satellite Radio a Hold.

4/24/2007 12:32:00 PM

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