Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high
XM Satellite Radio. (XMSR) Like rival Sirius,XM’s stock trades at about half of its 52-week high. Unles SIRI, XM has recoved from its low of $9.63 to $15.12. Even after reporting disappointing year-end subscriber totals of 7.6 million, the stock recovered from a brief dip.
XMSR is probably considered to be further down the road that Sirius, financial at least. On similar costs bases, XMSR larger subscriber count puts it closer to sustained profitabilty. XM also has a market cap of just over $4 billion, while SIRI’s stands at $5.22 billion. The ration of market cap to subscriber count is discounted at XM, giving it a lower risk profile.
XM has another advantage. It has partnerships with car companies that represent 58% of the autos sold in the US. The company’s announcement indicate that the auto installed base will grow this year and in 2008.
With a debt load of over $1 billion, XM still has to demontrate that it can hit subscriber levels that will drive cashflow to pay down debt. That issue should keep a cap on the share value through most of this year.
Factors that could move shares above targer: Churn. About 2% of subscriber leave the service each month. To grow, XM has to replace these and then add new subscribers at a great cost. If churn drops, the financial profile of the company changes.
Factors that could drive the stock below target: Now that the Howard Stern subscriber bulge seems to be moving into the past at Sirius, XM has to show that it has the programming to start adding as many new subscriptions as Sirius. If its continues to lag in the race, the stock may get hurt.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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