Analyst Actions: XM Satellite Radio, Google, Sprint Nextel

Opinions from around Wall Street on Tuesday


XM Satellite Radio (XMSR) rises 6.9% to $15.24 after Citigroup analyst Eileen Furukawa says merged XM/Sirius (SIRI) entity could achieve present value costs savings of $7.2 billion, based on detailed line item analysis. She says her estimate is likely conservative and does not include capex savings.

Furukawa also thinks the merged company could drive higher ad revenues on larger combined reach. She believes the probability of regulatory approval recently shifted in favor of XMSR and SIRI; consensus view underestimates the probability of merger completion. She says current XMSR stock price reflects 24% chance of M&A approval, which is too bearish.

She raises $15 target to $19.50, a probability-weighted target based on a high 60%'s probability of merger being competed. She keeps buy on XM shares.


Google (GOOG) shares move up nearly 1% to a new high of $615.18 after the company says it will reportedly begin showing YouTube videos on thousands of other Web sites, hoping to profit from adds attached to the clips, according to AP.

Also, Banc of America raises its target price on Google to $670 from $620. Analyst Brian Pitz says he expects strong revenue growth to be driven by: accelerating U.S. search query growth; continuing monetization improvements due to top ad placement algorithm change; growing international footprint, including gains in China; few signs of a slowdown in online financial services ad spending; and positive currency tailwinds.

Pitz also says some long-term catalysts include elimination of the company's Best Practices Funding In Europe; forays into Mobile Internet; increased monetization of YouTube; offline ad and hosted services providing upside in 2009 and beyond. As a result of the above items mentioned, he raises his price target to $670 and reiterates buy on Google shares.


Sprint Nextel (S) lowered its subscribers outlook and says its chairman, president and CEO Gary Forsee has stepped down, effective immediately. Stifel Nicolaus downgraded the stock to sell from neutral.

Analyst Christopher King says Sprint Nextel's third quarter guidance for a loss of 337,000 post-paid subscribers is much worse than his 100,000 loss estimate. He thinks 2008 will be a transition year for the new CEO to get arms around Sprint Nextel's operations while dealing with slowing U.S. wireless market for subscriber growth and little opportunity for significant operating turnaround until late 2008, at the earliest.

King cuts $1.02 2007 EPS view to $0.90, and $1.25 2008 EPS estimate to $0.91. He trims slightly over $1 billion from 2008 EBITDA estimate, to $10.8 billion, as he is now highly skeptical the company will achieve meaningful cost reductions he had forecast. He also says he sees little likelihood of a near-term buyout for Sprint Nextel.


Microchip Technology (MCHP) falls after it says it sees lower-than-expected second quarter sales.

Citigroup analyst Craig Ellis says the company's book-to-bill of 0.94, vs. 0.99 in the first quarter, shows overall orders are relatively weak, despite computing and auto strength. He thinks the company's issues are housing-centric in nature. He says it appears housing-related weaknesses worsened in garage-door openers, security, thermostats, home appliances, air-conditioners and irrigation in September.

Ellis notes that Microchip expects third quarter revenues to fall sequentially, with a wide outlook range indicative of low visibility. He cuts $1.48 fiscal year 2008 (March) GAAP EPS estimate to $1.40, $1.75 fiscal year 2009 to $1.60. He cuts $46 target price to $44.


Microsoft (MSFT) moves up after Goldman Sachs raised the company's 2008, 2009 and 2010 profit estimates. Goldman Sachs cited Halo 3 and aQuantive as reasons for its optimist outlook.

Home entertainment software stocks Electronic Arts (ERTS) and Activision (ATVI) get a lift following news Citigroup initiated coverage on them with buy ratings.

Massey Energy (MEE) gets upgraded by Stifel Nicolaus to buy from hold. Stifel says after reporting declining year-over-year coal output for 7 of the past 8 quarters, it expects the company's third quarter earnings release on Oct. 25 to show solid year-over-year growth, which they expect to continue for the next several quarters. Along with Massey's volume recovery, the firm says pricing has surged on the export markets for both steam (thermal) and metallurgical coal, opening the door for pricing to overcome rising production costs. It has a $32 price target on the stock.

Cooper Companies (COO) gets downgraded by JP Morgan to underweight from neutral. Analyst Michael Weinstein says the downgrade is based on his view that Street earnings and cash flow estimates are too high for fiscal years 2008-2010. He believes the Street is underestimating a negative shift within the company's contact lens business, leading to gross margin compression and a likely shortfall in fiscal year 2008 (October) EPS.

Before it's here, it's on the Bloomberg Terminal.