Serious decline for Sirius XM stock


After digesting Mel Kamrazin’s comments from Tuesday, investors yesterday sent Sirius XM stock skidding below a buck a share. That’s even below the target price of satellite radio bear Mark Wienkes at Goldman Sachs.

Internet stock chats were blazing with punches and counterpunches. Some posters insisted that a reverse split was inevitable to keep stock trading viable – an idea that Karmazin has already said is not being considered. Others said the sellers were nuts and that the stock is an incredible bargain at these levels – and sure to rise.

Wienkes was quick to reaffirm his “sell” call on the stock after hearing Karmazin speak, noting that his subscriber projections for 2008 and 2009 were below the consensus of Wall Street analysts. “Estimates and price target under review,” he noted – and that was before the stock had fallen below his old, repeatedly reduced target of $1.00.

“Sirius XM has laid out a path toward positive EBITDA, but current trends in subs, churn, and ARPU [average revenue per user], along with integration costs, higher interest expense, and pending capex needs seem likely to make realization of free cash flow – sufficient to justify the valuation – challenging at best.

Meanwhile, analyst Tony Wible at Citi issued his own take calling Sirius XM “massively undervalued.” Even so, Wible cut his own target price dramatically – to $5.00 from his previous $9.50. Other analysts are somewhere inbetween.

RBR/TVBR observation: The problem with reverse splits is that they often accomplish the opposite of their objective. Rather than shoring up the stock price by combining the equity of several shares into one, they often put the stock price into a new freefall and further disintegrate shareholder value. We don’t see Mel wanting to take that risk.