5 Reasons to Own Sirius XM Radio (SIRI)

My Target Valuation for SIRI

My $20 target on the stock was based on reasonable growth and revenue projections that assumed refinancing of debt in normal
market conditions.

Given the crisis and near-death experience, SIRI’s shareholders have paid a substantial price for survival. That price comes
in the form of 40% dilution to Liberty in return loans needed to repay debt. At today’s price of approximately 50 cents per share,
SIRI’s market capitalization is just under $2 billion.

Looking forward, I assume subscriptions increase by 30% per year, reaching 40 million by the end of 2011. At $11 per sub, annual
revenue reaches $5.5 billion. If you assume $500 million in advertising revenue and a profit margin of 30%, SIRI is making close
to $2 billion in profits.

With full dilution of shares, SIRI would be earning 28 cents per share in 2012. Put a 15 multiple on that number, and you get
a valuation of $4.24 per share. Previously, I was assuming much higher growth rates and more dollars generated from advertising.
Both assumptions are still in play, assuming a stronger economy. A more aggressive valuation then would be $10 per share.

The biggest change in valuation is due to the 40% dilution from the Liberty rescue. Without that rescue, though, there would
be no value for shareholders. The dreams may have faded with SIRI, but there is still a compelling reason to own the stock at
current prices.

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