Market Scan
Weak Retail Sales Hurt XM And Sirius
Mary Crane, 06.06.06, 12:31 PM ET
Morgan Stanley analyst Benjamin Swinburne lowered his subscription estimates for both XM and Sirius satellite radio operators because of weaker-than-expected retail sales in the second quarter.
But Swinburne, who said April sales are typically weak, forecasted an upswing in retail sales in May and June and remained bullish on both stocks in the longer term.
He maintained an "overweight" rating for both XM and Sirius, with price targets of $31 and $8, respectively, and added that, longer term, both companies could break even or reach positive free cash flow levels in 2008.
Until retail sales improve, however, Swinburne reduced his second-quarter subscriber net additions and 2006 subscription levels for both companies.
For XM Satellite Radio, Swinburne said he expects only 450,000 net additions in the second quarter, versus 600,000, and 8.6 million subscriptions in 2006, down from 9 million.
Likewise, the analyst forecasted 530,000 net second-quarter subscriber additions for Sirius, versus 608,000, and 6.27 million subscribers in 2006, down from 6.35 million.
Swinburne said that at XM, which hasn't seen its market share improve in retail for the last two months, could see sequential improvement with its greater spending on marketing.
Sirius remained the analyst's top pick in the cable and satellite industry despite its weak second-quarter retail sales numbers. He said the company should maintain its majority market share in retail.
The risk to both XM and Sirius, Swinburne warned, included further retail deterioration and negative news flow related to legislation on digital music payments and license negotiations.
Other than XM and Sirius, Swinburne also rated DirecTV as "overweight" in the overall cable and satellite industry.
forbes.com |
