A number of factors have contributed to the recent change in tune of analysts as it concerns SIRIUS XM Radio (NASDAQ: SIRI) not the least of which being the satellite-radio provider’s upcoming end to a three-year commitment to freeze their basic rates. That commitment, made to appease regulators during the SIRIUS/XM merger, comes off the books next year and while the company hasn’t announced any price hike a rate change remains a possibility.
As pointed out by Maxim Group analyst John Tinker, SIRIUS XM has significant room for growth in the car market as the 19.5 million current subscribers, 6% higher than 2009, could easily be expanded, especially with their partnerships with Ford, GM, Dodge, Audi, Jeep and a number of rental car agencies. Tinker also pointed to the considerable used car market that includes a number of vehicles with dormant receivers.
Maxim Group illustrated their optimism for SIRIUS XM by “forecasting revenue to increase 12% year-over-year to $2.8 billion in 2010 and 8.6% year-over-year to $3.1 billion in 2011.”
The general belief amongst analysts is that SIRIUS XM is more valuable today trading around the .96 mark than it was at its peak six years ago when it saw shares hit $9.43. That value, pointed out in an article published by MotleyFool.com, is based largely on the 40% preferred-share stake owned by Liberty Media gained in a deal early last year that resolved the debt issue facing SIRIUS.
According to Tinker now is the time to buy SIRI, setting a price target of $1.40, a level that hasn’t been seen for almost two years. Tinker has based the company’s enterprise value at 14.5 times what he expects EBITDA to be next year.
SIRIUS XM can point to four straight profitable quarters to ease any investor doubt and once again, analysts are predicting the trend to continue. By saying “We believe that SIRIUS XM Radio is the Amazon.com of the radio space” Tinker is suggesting SIRI will simply dominate the market as has Amazon when it comes to e-tailers.
That dominance is coming according to SIRIUS XM as they have said they expect to add an addition 1.1 million subscribers by the end of 2010. A health auto industry would certainly aid SIRIUS in reaching that goal and with solid quarterly numbers from Ford and the revamped GM along with Toyota and Honda it appears SIRIUS is on the right path.
In their Aug. 4, 2010 second quarter financial report SIRIUS announced adjusted revenue stood at $705.6 million, a 16% jump from the 2009 second quarter $607.8 million figure. Those numbers went along with $154.3 million in second quarter 2010 adjusted EBITDA, up 17% compared to the 2009 second quarter $132.2 million figure.
Mel Karmazin, Chief Executive Officer of SIRIUS XM Radio pointed to those numbers during the company’s conference call detailing the quarterly results saying, “The sharp subscriber growth and double-digit increase in adjusted revenue and adjusted EBITDA show that we continued to execute on our business plan during the second quarter.”
Karmazin went on to point out a number of accomplishments achieved during the quarter noting, “Compared to the year ago quarter, gross additions increased by 46%, deactivations declined by 8%, and customers paid us on average 11% more each month – clearly showing just how much subscribers love our service. Free cash flow in the second quarter 2010 was $108.3 million compared to $12.7 million in the second quarter of 2009. Our business has improved substantially in the past year, and we look forward to a strong second half and 2011.”
It seems that since their escape from bankruptcy last year SIRIUS XM has emerged stronger, thanks in large part to an improved auto sector. Of course that also goes to show how vulnerable the company could be as another blow to automakers or another serious economic setback could affect future growth of the company. As it stands SIRIUS XM is coming in clear and it appears as if the music will keep playing.
SIRI’s 200 day moving average is $0.89 and its 50 day moving average is $1.00 as can be seen in the chart below:
SIRI is a penny stock traded on NASDAQ. Penny stocks are shares in a public corporation which trade below $5 per share.