Shares of satellite radio are having a great day. XM Satellite Radio Holdings Inc. (NASDAQ:XMSR) are up over 9.4% and shares of Sirius Satellite Radio Inc. (NASDAQ:SIRI) are up over 5.4% on remarks from a Citigroup analyst who raised her target price for XM radio and commented on the possible merger of the two companies.

Citigroup analyst Eileen Furukawa who has a Buy on XM, raised the 12-month price target on XMSR from $16 to $21. The reason -- due to the deals XM has with car companies to pre-install the devices on their cars and trucks, she expects an increasing numbers of car buyers to sign up for the service.

Furukawa also discussed the possible merger between Sirius and XM. First, she said, XM is now more open to such a possibility, and second, this possibility could provide support for XM stock. As for the FCC, XM still believes that approval of the merger isn't certain.

It is generally believed that a merger could only benefit the two highly leveraged companies as they can share costs, cut redundancies and improve operations and earnings. What may have sparked life in the two companies' stocks is that the analyst also said she believes the merger could be signed before the fall of 2007.

Update:
XMSR closed the day at $16.65, up 10.12% or $1.52 on heavy volume.
SIRI closed the day at $3.98, up 7.28% or $0.27 and was the Nasdaq's volume leader.
I just can't help but wonder if we will wake up to an announcement...