JP Morgan downgrades XM, Sirus
J.P. Morgan has downgraded the two satellite radio companies, citing probable subscription difficulties in the coming quarters. According to a Market Watch article, the firm predicts that growth will slow for both companies in ‘06.
J.P. Morgan went to underweight from neutral on shares of Sirius, saying comparable subscribership numbers after the first quarter of fiscal 2006 are going to get progressively tougher for the company and that the valuation disparity between it and XM, still the leader in the nascent industry, has become a challenge.
The firm, which makes a market in Sirius shares and has done investment-banking work for it in the past 12 months, also sees risks to forward earnings estimates as price competition with XM heats up.
“We see 2006 as a transitional year, with the satellite radio story well understood, expense risks rising, and free cash flow not arriving until 2008, Sirius’ 5% firm value premium to XM appears high,” analyst Barton Crockett said in a research note.
A spokesperson for J.P. Morgan also said they felt that Sirius’ value would drop once all the “Stern hoopla” subsided. The devaluation of Sirius, however, should not necessarily mean a rise in XM’s stock.
