Shares of XM Satellite Radio and Sirius Satellite Radio are up today. The gains come on news that XM recorded positive cash flow from operations during the fourth quarter. Some traders are reacting to the news as if the worst of the companies’ struggle into the black are over. Maria Bartiromo had two analysts on “Closing Bell” who would beg to differ.
Tuna Amoby is an analyst at Standard & Poor’s, and his firm has a “sell” rating on XM. Amoby chose to ignore the operating cash flow metric because free cash flow is more important, he says – and he doesn’t expect XM to see that until mid-2008.
Both XM and Sirius are expected to enjoy a boost from partnerships with auto companies like Ford and General Motors, but that’s not going to be enough to make up for lagging retail sales, says Amoby.
Lucas Bender, a UBS analyst, says that this year will be when Sirius will break even on free cash flow, with XM pulling up the rear. He also says that part of what is holding up these stocks is speculation over a merger between the two companies. He expects an official announcement either for or against a deal sometime in the next six months.
Amoby doubts the Federal Communications Commission will be willing to hear a proposal. While changes are being made in the radio space to allow for free competition, he says it's too soon for an XM-Sirius merger to happen this year.