Two (or Three) SIRIUS XM Upgrades in One Day (SIRI)

SIRIUS XM Radio Inc. (NASDAQ: SIRI) is a very under-followed stock considering how the company has such a cult following, millions of subscribers, and that its market cap is close to $3 billion.  Yet the sub-$1.00 price is a huge restriction as many firms refuse to cover penny stocks or even stocks under $5.00. But  today we have seen two positive research reports on the company.  A boutique firm called Wunderlich giving this a “Buy” rating.  The more important upgrade is a debt upgrade from Standard & Poor’s.  A third call is not an upgrade, but is another positive call.

When was the last time there has been this much coverage on SIRIUS XM in a single day?

The biggie today is the debt rating upgrade from S&P, a move which takes the corporate credit rating to “B” from “B-” and a move with a “Positive” outlook.  S&P noted that the EBITDA generation and discretionary cash flows have both improved on synergies and cost savings along with better operating performance and declining debt leverage.  The rating outlook is positive and S&P said its outstanding issue-level ratings on the company were also raised by one notch.  SIRIUS XM had total debt outstanding of $3.4 billion as of September 30, 2009.  A “B” rating is hardly a major endorsement, even if it is less cautious than yesterday’s “B-” rating.  S&P noted that this reflects a high debt leverage, weak interest coverage, and a dependence on weak U.S. auto sales.  S&P noted that the preliminary 2009 EBITDA data brings the ‘debt to EBITDA’ to a steep ‘just below 8.0x’ and EBITDA coverage of interest expense is thin at a ratio of at 1.2x.

The boutique call from Wunderlich was a BUY rating.  The target was set at $1.00, implying 40% upside from yesterday’s closing price.  You can’t really consider TheStreet.com an upgrade, but today it did write that SIRIUS could boost profit next year according to Chris Arbuthnot of the John Hancock Global Opportunities Fund.

Last week we outlined the risks ahead for SIRIUS XM.  One is Pandora as a web-radio for the car, but the larger risk is the Howard Stern contract coming up at the end of this year.  Both pose as likely risks, yet neither are likely to be absolute death-blows.  The stock responded well today with a close up of 4.6% at $0.74 on the day with over 40 million shares traded.

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JON C. OGG