Why Goldman Sachs' Sell Rating on Sirius Didn't Matter (SIRI, XMSR)

Most days investors might get thrown into a stir when one of the most active stocks like Sirius Satellite Radio (NASDAQ:SIRI) has a "SELL" rating next to it, particularly if it comes from a bulge bracket firm like Goldman Sachs.  But this really didn’t matter, and for a few obvious reasons.  Analyst Mark Wienkes of Goldman Sachs is rated a 4 of 5 stars by StarMine, although that leaves 5 other analysts ahead.

Goldman Sachs has the lowest or one of the lowest price targets out there on Sirius at $2.25 per share.  To top it off, the entire call was a whopping change to 2007 estimates of a mere penny per share after its mostly in-line earnings yesterday.  Goldman also noted that the net subscriber additions were 525,000 compared to its own 450,000 estimate and a consensus net subscriber add of roughly 425,000. 

The part that Goldman Sachs used to cut estimates really looks more like it is splitting hairs than it is making any major statements:

• Revenues of $242 million (actually $241.8M) were 1% under Goldman’s target;
• Adjusted EBITDA was -$57 million compared to Goldman’s -$70 million estimate;
• The $103 average sale of $103 was in-line with Goldman’s target;
• Average revenue per user was $10.71 versus the Goldman target of $10.77;
• Churn was 2.16% instead of Goldmans 2.2% target, but above the 2.0% last year;
• Goldman’s loss per share for 2007 was adjusted by a whole penny to -$0.41;
• Goldman’s 2008 target is -$0.34.

Another interesting note is that Goldman Sachs has put roughly a 30% chance of the XM Satellite Radio (NASDAQ:XMSR) going through.  Over the last few weeks there are some indications that there is a better chance, although any specific percentage chances of this being approved would be hear-say.  24/7 Wall St. still believes that the regulatory powers that be "should" allow this merger to go through, but the government is the government and we aren’t going to predict what a few people’s decision will be. Particularly when they are heavily under the influence of opposition forces to this deal and make closed decisions in a star chamber.  XM shares have actually been outperforming Sirius as of earlier this week, even though the interim CEO of XM is acting like a normal CEO.

Shares had been up all day on Sirius and the only time it went flat or down marginally was after the FOMC cut initial trader interpretation.  With just under 20 minutes to the close, Sirius shares are up 1.8% at $3.35 and shares briefly touched as high as $3.45 early this morning.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at [email protected]; Sirius Satellite radio and XM Satellite Radio have both been reviewed for 24/7 Wall St.’s subscriber newsletters under the  Special Situation Investing Newsletter and the Old Media/New Media newsletters.