Sirius & XM: Citi Optimistic About Merger

Both Sirius Satellite Radio (SIRI) and XM Satellite Radio (XMSR) reported Q1 results yesterday, with XM reporting a wider loss and Sirius coming in just below consensus.

Sirius reported revenue and EPS of $270.4 million (just below $271.5 million consensus) and -$0.07 (in line). XM reported weak revenue and EPS of $308 million (below $313 million consensus) and -$-0.42 (below -$0.41 consensus).

Still, Citi is optimistic on both. Citi described Sirius’ quarter as “in-line” and noted how a weak macro environment was offset by OEM revenue:

The disappointing retail results were attributed to the weak macro enviornment and merger limbo. However, the continued OEM strength in the face of the merger and macro issues highlights the potential for increasing OEM penetration to drive strong subscriber growth.

Citi maintains its Buy rating and $8 price target. As for XM, Citi sees a “silver lining in soft 1Q results.”:

Revenues and subscriber additions were light and SAC increased, which is not too surprising given the tough macro environment. However, there were several bright spots, including: 1) strong OEM sub growth; 2) lower churn; and 3) more subs on annual or longer plans.

Citi maintains its Hold rating and $12.24 price target. With regard to the as yet uncompleted merger between the two struggling firms:

We expect the merger to soon close and see significant value from: 1) expense synergies; 2) the elimination of duopoly; and 3) revenue synergies from new service plans. These new price plans stand to further aid OEM penetration longer-term and reduce churn.

The big question here is whether even the merger can save these two companies.

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