Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high
XM Satellite Radio. (XMSR) Like rival Sirius, XM has lost about half of its share price over the last year. Unlike Sirius it has recovered from its low of $9.63 to $15.12. There may be one simple reason for this. With 7.6 million subscribers versus 6 million at Sirius, and a cost base that is probably comparable to its rival, XMSR is further along the path to sustained profits. Although the company’s stock dipped on disappointing year-end subscriber news, it recovered quickly.
XM is also doing better than Sirius in the factory-installed car base. It currently has deal with car firms that cover about 58% of auto sales in the US. And, these factory installed units are expected to grow this year and in 2008.
XM faces that same challenges from digital music players and new rivals that can send programming to cars over developing wireless systems. But, with a larger base of subsribers, it has less risk that its competitor.
Factors that could drive price above forecast: Improved churn rates. About 2% of subscribers leave the service each month. To show subscription growth these users must be replaced in addition to adding new users. A drop in churn save a huge amount in marketing costs.
Factors that could drive stock below forecast: XM is growing more slowly that Sirius. With the affects of Howard Stern moving into the past, XM has to demontrate that it can add subscribers as fast as its rival.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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