If you thought Sirius ( SIRI) was in the sweet spot before, you're in for a real treat now. The cash-burning satellite radio company, occupying its customary spot atop the Nasdaq most-active list, jumped 10% Friday after a pair of upgrades underlined Wall Street's fascination with its highly speculative story. The latest feeding frenzy was sparked in part by a note from Bear Stearns analyst Robert Peck, who raised his rating on Sirius to neutral from sell. Peck cited the company's recent recapitalization and the success of a $175 million convertible bond sale that closed last week. The New York-based broadcaster managed to raise enough money to fund its operations through the middle of 2004, with as much as $20 million to spare, Peck says. Also boosting Sirius was a credit upgrade from Standard & Poor's, which cited the broadcaster's improved capital structure and said it viewed the company's outlook as stable. So now more than ever, with funding in place and auto-industry and retail partnerships established, the sky is the limit for Sirius and its duopoly rival, XM ( XMSR). Or at least that's been Wall Street's theme song during a monthlong rally that has doubled Sirius and added 20% to XM. On Friday, Sirius added 14 cents to $1.49 and XM added 18 cents to $11.36.
Some observers call Sirius and XM ideal stocks for the current market, which seems to have an increasing appetite for growth stories, the more speculative the better. Sirius and XM have attracted interest with the growing popularity of their 100-plus-channel subscription radio service and its mass-market potential. The current convertible craze has made investors feel even better about red-ink-gushing tech shops by diverting attention from massive losses and toward the benefits of cheaper loans. The convertible market has been so flush that more robust tech plays such as network-gear maker Juniper ( JNPR) have secured financing interest-free. For its part, Sirius will be paying 3.75%, a markedly better rate than the company could have hoped to attract before this spring's recapitalization. Even with its newly stuffed passbook account, however, Sirius remains a rather puny-looking specimen financially. Earlier this month the company posted a first-quarter loss of $99 million on $1.6 million in sales. And as pleasing as they were to the bulls, the upgrades contained the seeds of skepticism. For his part, Peck put his price target at $2.50 to $3 in 2004, which suggests that he doesn't expect the stock to continue on its recent torrid pace. If anything, the S&P upgrade was even more lukewarm. Sure, the agency boosted Sirius' corporate credit rating -- but only to the dismal deep-junk level of triple-C, from the ignominious D for default. And even at that S&P was hedging all the way: "This may be optimistic in Standard & Poor's opinion and will require the company to make steady and considerable operational advancements over the next few years," the agency noted. But don't be surprised if the Street keeps tuning that view out for a bit.
Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.