Tuesday, March 29, 2011

Stern’s Sirius (SIRI) Lawsuit Overstated Says Citadel Securities

Citadel Securities media analyst Vijay Jayant says in a report that the lawsuit by Howard Stern against Sirius XM Radio (NASDAQ:SIRI) is being "overstated," and he maintains a "Neutral" rating on the stock.

"In his report, Jayant lays out a 'worst-case scenario' for what the potential impact could be from the lawsuit. In this 'worse-case scenario' XM subscribers are included in the 'total' subscriber number. At year-end 2008, Sirius XM had amassed 19 million subscribers. This would place 'total' subscribers at 10 million over the original expectation of 7.2 million subscribers. Jayant estimates this 'worst-case scenario' obligation to Sirius XM would be $370 million. He calculates this by assuming $84 million for every incremental 2 million subscribers in addition to a 10% agent consulting fee. He then calculates in a 5% simple interest rate and comes up with a 'worst-case' potential share award of $425 million. This equates to $0.04 a share (after tax) or about $260 million at current prices. Jayant notes that this potential stock award to Stern could dilute Liberty Capital’s (NASDAQ:LCAPA) stake by -145bp," noted Seeking Alpha.

"While Jayant believes the potential impact from the earthquake in Japan on auto sales, and thus Sirius XM, will be “modest,” he estimates every week of halted vehicle and parts production in Japan could result in -20,000 lower gross subscriber additions. He notes that this would not likely begin until May, assuming auto dealerships hold 2 months of inventory. While he is lowering his 2Q subscriber forecast in light of this, he is also raising his 1Q forecast due to strong vehicle sales in January and February," they added.

Sirius closed the same as the prior trading session on Monday, at $1.72 a share. Jayant has a price target of $2 on the company.


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