Friday, April 8, 2011

Sirius' (SIRI) Upgrade Not Convincing

Sirius XM (NASDAQ:SIRI) was upgraded today by Gabelli & Company analyst Brett Harriss, citing what he sees as the future growth potential of the company.

One little problem with Harriss' upgrade is he's not interested in acquiring shares in Sirius, but rather in investing the play through Liberty Capital (NASDAQ:LCAPA). He said he sees Liberty trading at a 30 percent discount to its NAV.

In other words, he threw out all his numbers and reasonings, and in the end won't be investing in the common stock of Sirius. Not much of a way to back up his upgrade.

The bottom line for Harriss in his upgrade of Sirius is a perceived pricing power.

Harriss stated:

"Since inception in 2000, Satellite Radio has never increased its subscription price despite the addition of new content. Sirius customers are loyal: 1.9% monthly churn is low compared to other subscription businesses and did not spike through the recession. With a relatively modest subscription price, we think SIRI can raise prices without significantly impacting consumers’ budgets."

I think Harriss is wrong here, as proven by past responses by consumers to hefty gas prices, which are approaching significant levels.

There's also the unknown long-term impact on selling of new vehicles as well, which will slow down any growth in at least the short term for Sirius.

If Sirius raises prices (depending on the amount of course), I think we will see a backlash and consumers will think twice before going with the service, and only once in dropping it.

Harriss' conclusion only makes sense under normal economic conditions, not the difficult times we face today.

Sirius closed Thursday at $1.76, plunging $0.08, or 4.35 percent. Harriss amazingly upgraded the company to a "Buy."

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