Sirius XM Near All-Time Lows, But Is It a Buy?

Now that the Sirius-XM Satellite merger is finally here, the question has become: Is this stock worth buying? And for that matter, are any radio stocks worth buying?


Neither Sirius Satellite Radio nor XM Satellite Radio was cash-flow positive at the time of the merger's completion in July, and they lost a combined $668 million in 2007.

The stocks rose when news of the merger was first announced nearly a year and a half ago, but shares of the combined company, Sirius XM Radio, have since fallen to around $1.30—a decline of more than 52 percent on the year.

But despite those setbacks—and slumping auto sales—David Joyce, a media analyst for Miller Tabak, said Sirus XM Radio , now the only satellite radio provider in the United States, is still a good long-term buy for investors.

The new company, which differs from traditional AM/FM radio in that customers pay a monthly fee for access to hundreds of channels, has 18 million subscribers and a larger competitive edge over traditional radio in terms of content, which ranges from music and sports to talk shows—most of it commercial free, Joyce said.

He predicts the stock will hit $3 by next year, and possibly $4 if the company successfully eliminates its debt, he said.

Tony Wible, an analyst at Citigroup, has a higher estimate: He sees the stock reaching $6.50 by next year, after pushing through a slump caused by the drawn-out merger process.

"This merger has lasted so long that there has been real buyer fatigue," he said.

Tough Times for 'Terrestrials'

The merger’s effects will also extend into traditional, or as they’re sometimes called, terrestrial AM/FM radio stations. Analysts had differing opinions on whether those stocks have the same potential for profit as they once had.

Satellite's premium programming and wide spectrum of content caused Citigroup, which has had Cox Radio and XM as investment banking clients in the past 12 months, to place a sell rating on the majority of terrestrial stocks, Wible said.

That's because the combined power of the two companies may spark fierce competition for advertising revenue down the road—revenue traditional AM/FM stations desperately need in a changing market, he said.

To survive, stations will need to merge and consolidate, or model themselves after free Internet radio services such as Pandora.

"The challenge for companies is how to continue to invest in that while cutting costs in the near term," Wible said. "[They’re] stuck in a tight spot where they’re ... kind of hooked on the commercials."

Also making it more difficult to rake in ad revenue is Arbitron’s new portable people meter (PPM) technology, a device that tracks how many people are listening to individual radio stations, he said. PPM more accurately measures radio’s dwindling audience size, thus transferring more power into the hands of advertisers.

The technology is already active in 14 markets and will be implemented in eight more in October. It will be used in the top 50 markets by 2010, according to Arbitron’s Web site.

Joyce, on the other hand, thinks traditional radio will overcome these challenges and called the stocks a good long-term investment for patient buyers.

Shares of Cox Radio , one of the largest radio broadcasting companies in the country,are down 17 percent on the year at about $11, and Citadel Broadcasting, the largest pure-play radio company in the United States, has fallen 59 percent over the same period. It is currently trading at less than $1.

"There is very limited downside from here," he said.

Standard & Poor’s also took a different stance on those stocks, giving them a hold rating, said broadcasting and entertainment analyst Erik Kolb.

"There’s really no sizable catalyst for the industry in the near term," Kolb said. "Most national revenue numbers are down in the double digits for the most recent quarter, whereas most local revenues are down in the mid-single digits."

Disclosures: None of the aforementioned sources own stakes in any of the stocks they discussed.