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    Sirius XM: Lazard Upgrades To Buy; Sets $2.25 Target Price

    By Eric Savitz | Forbes – Fri, Nov 18, 2011

    Sirius XM shares are trading modestly higher Friday morning after Lazard Capital analyst Barton Crockett upped his rating on the stock to Buy from Neutral, setting a price target of $2.25. The stock closed Thursday at $1.74.

    Crockett writes that the satellite radio company offers "an unusually resilient growth story," with "robust EBITDA growth" even in difficult economic scenarios. "We also see a call option on long-term share repurchase that could double equity value beyond our price target," he writes.

    Crockett writes that in his base model, assuming a muted economy, the company's adjusted EBITDA can jump to $1.5 billion in 2014 from $751 million this year. Of the increase, $300 million of that reflects a 12% rate hike that the company is phasing in starting January 1, 2012. Another $200 million is from costs cuts related to a General Motors contract reset that starts Q4 2013. And $250 million is from growth in new subs. While he concedes that subscriber growth could stall if a recession hits, he says the company will still see nearly $600 million in EBITDA growth from the rate hike, GM reset and reduced subscriber acquisition adds.

    He adds that if the company can maintain leverage in the 2x-3x range, share count could shrink by over 25% by 2015, and by over half by 2020. "If Sirius repurchases to its capacity, we estimate that the present value of the equity could more than double above our price target."

    SIRI in early trading is up 4 cents, or 2.3%, to $1.78.

     

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