Analyst Sees Sirius XM Worth $5 After No Merger

The Bank of America Merrill Lynch team, led by Jessica Reif Cohen, is reinstating Sirius XM Holdings Inc. (NASDAQ: SIRI) with a Buy rating on the heels of the new Liberty Media strategy. What really stands out is that the Merrill Lynch team is looking for almost 50% upside.

This call matters because 24/7 Wall St. published an assessment of Malone and Liberty’s bid on the announcement: Sirius XM shareholders were getting hosed.

The Merrill Lynch report was simply named “Liberated” now that Liberty Media Corp. (NASDAQ: LMCA) has withdrawn its bid to acquire (or steal) the remaining 47% of Sirius XM at $3.68 per share. The new plan is to spin Liberty into dual tracking stocks, even though plans for ultimate ownership or involvement in Sirius are not fully clear. For now, Sirius will remain the main asset of Liberty, while a new Liberty Broadband tracker will include the company’s 25% or so stake in Charter and its prior holdings in Time Warner Cable, along with other assets.

Merrill Lynch sees the following growth trajectory compared to $0.11 per share earnings in 2013: $0.18 in 2014, $0.21 in 2015 and $0.24 in 2016. After $3.8 billion in 2013 revenue, Merrill Lynch sees sales growth of 8.7% in 2014, 5.3% in 2015 and 4.8% in 2016.

The reinstated price target is $5.00 per share, which implies some 48% upside potential. The thesis is that with great noise comes great opportunity. The firm’s positive aspects include the following:

The platform has a competitive advantage versus any other audio-only offering, including intellectual property. It has overcome challenging hurdles, including the buyout. It has a content advantage, including exclusive sports, talk, music and other channels, most of which are of a fixed-cost nature. It will benefit to the extent 4G (LTE) solutions proliferate in vehicles. It is the fastest growing company in media growing EBTDA at 20% expected for years. And it continues to execute, including M&A in the telematics space.

Sirius XM shares were up only 2% to $3.45 in Friday afternoon trading, but we had seen some 255 million shares trade by 1:30 p.m. EST. $5.00 is serious upside – — or is it Sirius upside?