Stifel Nicolaus Says a XMSR/SIRI Merger is "A Scenario Which We See As Increasingly Likely"

Stifel Nicolaus comments on XM Satellite Radio Holdings, Inc. (Nasdaq: XMSR), maintaining their Buy rating and $16 price target, citing significant upside potential in merger scenario.

Analyst Kit Spring said, "Despite the fact we have reset our terminal 2011 EBITDA down by about 12%, we are maintaining our target by rolling the target year forward to 2007. Our $16 is based on a 4-year DCF which assumes 17MM subscribers, a 9x multiple of EBITDA, $435 EV per sub, discounted at a 10.5% WACC. An easier way to derive our target is: $930MM of free cash flow in 2011, or $2.58 per share, times a 10x multiple (looks conservative to us) equals a $26 stock price, which would equal $16 discounted back to year-end 2007 at a 13% equity discount rate. We see significant upside potential to our target if SIRI (Nasdaq: SIRI) makes a merger bid for XMSR, a scenario which we see as increasingly likely."