Sirius XM Gets Marked Down by Goldman Sachs

The week that started off with Sirius XM Radio hitting a fresh six-year high and tacking on another bullish analyst is wrapping up as a fade-out. Shares of the satellite radio provider slumped 4% yesterday after it posted disappointing quarterly results, and they're heading even lower today after Goldman Sachs downgraded the stock.

Goldman's Matthew Niknam is sticking to his current 12-month target of $4.25, but the stock is being downgraded from buy to neutral since it has already appreciated substantially since being added to the firm's Americas Buy List -- with an initial $3.50 price target -- late last year.

"The core elements of the Sirius XM story remain in place," Niknam wrote, adding that he ultimately feels the stock could get cheaper in the near term. Trading at more than 20 times next year's normalized free cash flow opens the door for volatility that opportunistic investors can cash in on by buying low.

Naturally, Niknam's presenting just one opinion. FBR Capital Markets had no problem slapping a $5.50 price target on the shares earlier this week, giving today's investors substantially more upside than where Niknam sees the stock a year from now. To be fair, FBR Capital Markets initiated its coverage ahead of Sirius XM's disappointing revenue growth and weak top-line outlook for 2014. However, it's not as if mixed quarterly results warrant a revision so soon.

On the positive front, Sirius XM did grow its subscriber pool to 25.6 million accounts. Churn was also held in check. Auto sales are still going strong, though Sirius XM pointed out that a lot more of the new-car buyers than projected this past quarter are active subscribers on the cars they're trading in. The assumption had been that more of the cars being bought today would go to folks with older cars that didn't have receivers. That's bad news for now, but it's also a long-term blessing because it translates into more receivers in the used-car marketplace. 

Sirius XM's subscriber guidance does suggest that the total number of subscribers will decline in the current quarter, something that we haven't seen in four years, but self-pay subscribers should continue to grow. The report wasn't as bad as the two days of declines would seem to suggest. A correction is normal. The model is still working.

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