Morgan Stanley Upgrades Sirius to Overweight, Gives a $2 Target

Satellite Radio Playground submits:By Demian Russian In a research report issued Wednesday, Morgan Stanley upgraded Sirius XM (SIRI) from Not-Rated to an OVERWEIGHT rating, placing a $2.00 price target on the equity. Analyst David Gober believes that the huge potential for return of capital in the 2012-2013 timeframe should attract more institutional investors and drive SIRI higher over the 12-18 months. Gober expects continued accelerating subscriber growth, continued cost containment, and lower capex will lead to a 15-18% EBITDA growth CAGR and $1 billion in FCF ($0.20 per share) by 2015. “We also now believe the range of potential outcomes for SIRI has narrowed, giving us greater conviction on valuation,” Gober noted. Due to Sirius XM’s continuing ability to grow EBITDA and generate significant FCF, Gober assumes Sirius XM will repurchase ~30-35% of its shares by 2015. Gober assumes net debt leverage will fall to 2x by the end of next year. In comparison, Sirius XM is currently leveraged at 3.25x and was leveraged 5x at the end of 2009. In light of management’s commentary and Liberty Media’s (NASDAQ:LCAPA) 40% stake, Gober believes Sirius XM could maintain 3-4x debt leverage, which implies $5-6 billion of capital available through 2015. In light of the recent rebound in new auto sales, Gober sees upside to consensus net subscriber addition estimates. He noted a huge opportunity for Sirius XM in the used market as well, estimating that there will be 65-70 million vehicleComplete Story »