In our new InvestorPlaceBlogs Chat Room, I hosted an afternoon Happy Hour chat with members of our community.
At the end of this engaging discussion, I closed by asking all participants to mention their favorite stock to own at the moment.
What was my choice?
Sirius Satellite Radio (SIRI) of course.
The choice wasn’t even close for me, as I can think of no other name that has been beaten up by the market for so many unjustifiable reasons.
This stock is ready to explode, and there are many reasons why you want to own SIRI right now. For starters the long-awaited merger with XM Satellite Radio is about to be approved by the Federal Communication Commission (FCC).
This morning, the agency, which had been deadlocked in a 2-2 tie with respect to approving the deal, stated that Republican, Deborah Taylor Tate would support the deal if the companies agreed to pay fines related to prior and supposedly continued transmission violations. The $19.7 million combined fine will pave the way for the FCC to approve the deal.
Best I can tell, there will be no additional concessions required beyond those already reported.
This news is extremely bullish for shareholders and will begin an ascent toward a valuation more fitting for a monopolistic industry dominator.
Indeed, the combined entity will now be a monopoly free to charge prices that ensure profitability. In fact, the definition of a monopoly suggests that future revenue generation will be above the level that would be generated with normal competition.
Do you all realize what this means? I do!
The first thing that comes to mind is Microsoft (MSFT).
Five years from now, once all of the dust is settled, commentators will note how SIRI dominates its space just as MSFT does with respect to operating software for personal computers. That domination in a market that is potentially quite large will justify the current valuation and much more. Oh, so much more.
I am firm in my long-held belief that at some point in the new millennium’s second decade, SIRI will be worth multiple times today’s valuation.
My current target price of…
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My current target price of $20 per share holds firm (see also, "Sirius (SIRI): Cutting Through the Noise").
It has been a difficult two years for SIRI. The stock has done nothing but a slow bleed and then some.
Intense competition with XMSR and then the uncertainty of this merger have provided serious headwinds for the company (see also, "XM-Sirius Merger: Regulatory Bull").
Like the perfect storm, these headwinds collided directly with a slowing economy and a consumer that was challenged to say the least. The result was losses and a much slower growth rate than previously attained.
Although the monthly rate for satellite radio is not much more than a few lattes at the local coffee shop, consumers have been cutting back on these discretionary expenses.
We have all seen what is happening with the coffee shops like Starbucks (SBUX) to know the damage that can be done by a weak consumer is real and large (see also, "Why Starbucks (SBUX) Needs a Pick-Me-Up").
The good news for SIRI is that its churn rate has been sinking. That means its customers are keeping their subscriptions going even during these tough times. That fits in nicely with my overall thesis of satellite radio: Content is truly King.
The attractiveness of SIRI’s product offering is very compelling.
Infinite choice for the radio is quite powerful. There is no contest with terrestrial radio and its limited menu of options. The only barrier to SIRI’s success then is competition with XMSR and prying dollars from consumers.
We solve the first problem with the merger. As for the second problem, we are about as low as we can go with the current softness in the economy. With any type of strength, I expect SIRI to resume its path of near 100% subscriber growth rates.
In a way, the delay in the merger is probably a good thing. While the economy gains its footing, SIRI will be dealing with the integration issues involved in the merger. Specifically, they will be setting up that a la carte menu that I expect will make it very easy for the consumer to part with his or her dollars. I know I will part with mine.
As such, owning SIRI at today’s prices makes a ton of sense. Heck, the stock is only up 40 cents since I mentioned it in the InvestorPlaceBlogs chat room with more gains to come.
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