XM Satellite Radio: Is the Static Clearing?
An analyst's newfound confidence was music to some investors' ears on Tuesday.
For much of 2006, it must have seemed as though the sky was falling for shareholders of XM Satellite Radio. The stock (symbol XMSR) had plunged from $30 to a little more than $11 before the opening of trading Tuesday. There were good reasons for the decline: Customers weren't renewing at anticipated rates, and the Federal Communications Commission was leaning on the company because satellite radio car receivers were interfering with FM reception in nearby vehicles.
But then Bear Stearns analyst Robert Peck issued a report that turned his "underperform" rating to "outperform." Peck figures that the bad news has largely run its course, and that the market has overreacted. It certainly reacted to his upgrade, as XM's stock soared 20% on Tuesday to close at $13.52. The rally spilled over to rival Sirius Satellite Radio (SIRI), whose shares climbed 3.6%, to $4.03.
Peck listed 12 reasons why XM's stock should perform better. On top of the list: XM and the FCC are about to reach an agreement on toned-down receivers that will still deliver great audio; sales at retailers are holding up and should pick up for the 2006 holiday season; the company has enough cash to get it through these tough times; and management is stronger. Also, despite shock jock Howard Stern's move to Sirius and Sirius's recent deals with the National Football League and Nascar, XM's programming is sound enough to maintain its audience's loyalty and attract new listeners.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Peck says his $17 target price on XM stock by the end of 2007 is based on conservative numbers. The company, for example, is predicting 18 million to 19 million subscribers by 2010, but Peck is figuring just 16.5 million.
Still, this is not a stock for chicken-hearted investors. Analysts, on average, expect XM to lose $2.63 a share this year and $1.79 a share in 2007. Peck is slightly less negative, seeing a loss of $2.61 per share this year and $1.52 next.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
Donating Complex Assets Doesn't Have to Be Complicated
If you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Travel trends you can expect this summer
The Kiplinger Letter Domestic trips will trump foreign travel amid economic uncertainties, though some costs are down.
-
My Three-Day Rule for Investing: And If it Applies Now
Stock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?
Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Fed Leaves Rates Unchanged: What the Experts Are Saying
Federal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Why Is Warren Buffett Selling So Much Stock?
Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have Today
Google parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.