Wednesday, April 27, 2011

Sirius (SIRI) Downgraded by Lazard on Valuation, Earnings

Lazard analyst Barton Crockett downgraded Sirius XM (NASDAQ:SIRI), citing it hitting up against his price target and the stock price reflecting the Sirius story, which is well-known to most investors.

Crockett said, “A key upside argument from here is rate hikes, with a merger rate hike restriction likely to end in 2Q11. While Sirius XM’s subs are loyal and engaged and we believe will pay more, we also believe that Sirius XM is likely to act conservatively, in recognition of a still tepid consumer environment. A profusion of new online music streaming services from Internet companies, startups, and IPO candidates also augurs for some pricing caution. We are not willing to assume big upside to our long-term 3% rate hike assumption.”

He sees Liberty Capital as a better play for Sirius: “Our DCF of surging free cash flow is consistent with the current stock price, which is an adj. EV (incl NOLs) of 18.1x 2011E adj. EBITDA. For Sirius exposure, we see a better value at Liberty Capital, which owns 40% of Sirius XM, and trades a third below the pre-tax value of its parts. We see likely scenarios for LCAPA to exit these stakes tax-free.”

Lazard downgraded Sirius from "Buy" to "Neutral." Sirius was trading at $1.975, up $0.01, or 0.51 percent, as of 2:37 PM EDT.

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