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To: Bill Harmond who wrote (21571)	7/30/2004 11:43:24 AM
From: Bill Harmond	Read Replies (1) \| Respond to of 57684

BofA today on XMSR ♦ We are initiating coverage of XM Satellite Radio (XMSR) with a rating of Buy and target price of $32. Yesterday’s closing price of $24.89 implies 14 million subscribers by 2010, as based on our NPV per subscriber perpetuity valuation. BofA estimate is for 18 million. Upside to our model provided by – 1) RV’s, boats, offices, 2) “wearables”, 3) Navstar, 4) airlines, and 5) video. ♦ Three keys to our XM call. 1) “Push” is the trick – superior OEM promotional plan versus Sirius, 2) technology lead in chipset and product development, and 3) operating cash flow profitability by mid-2005. ♦ Sustainable competitive advantages over Sirius. 1) Prime mover advantages, 2) cost-structure scalability, 3) higher brand awareness; 4) technology/product innovation, and, 5) outstanding management team. ♦ Near-term risks to our positive XM thesis. Includes – 1) Any miss in subscriber growth estimates, and 2) upcoming Sirius National Football League (NFL) promotion in Fall-04, and 3) higher CPGA than forecasted. Specific long-term risks include – remaining GM payment obligations may delay FCF profitability, satellite insurance, and Sirius. ♦ Valuation and Target Price Analysis: Our target price of $32 is based on our tax-adjusted DCF, 25.0x Price /Forward FCF and perpetuity value of Net Present Value per Subscriber analyses.