Sirius XM Stock Drops After Howard Stern Files Suit

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An analyst downgrades his rating on the satellite broadcaster after the shock jock accuses the company of stiffing him on stock options.

NEW YORK -- Wunderlich Securities analyst Matthew Harrigan on Wednesday downgraded his rating on shares of Sirius XM Radio and his target price on them following Howard Stern's lawsuit against the satellite radio company.

In early trading, Sirius shares were down more than 3 percent before closing the day down 2.1 percent at $1.67.

Harrigan downgraded the stock from "buy" to "hold" and cut his price target from $2 to $1.65, arguing that "Sirius' current stock market valuation likely cannot accommodate the uncertainty engendered by the suit - even if it ends up being meritless."

On Tuesday, Stern's production company One Twelve and his agent Don Buchwald had filed a lawsuit against Sirius for non-payment of stock awards that they claim they are entitled to under Stern's original employment agreement with Sirius.

Meanwhile, Harrigan maintained his "buy" rating and $85 price target on Liberty Media's Liberty Capital arm, which is an investor in Sirius.

The analyst also said that the recent annual reports, known as 10-Ks, from Sirius and Liberty may suggest a limited legal risk from the Stern suit. "We found no disclosure relating to Howard Stern risk in the Liberty 10-K filed in February 2011, nor in the Sirius XM 10-K," he said. "We find it hard to believe the auditors or counsel could have omitted this risk, which may afford some comfort as to the substance of the complaint. "