Media

Why Merrill Lynch Sees Sirius XM Worth $5 per Share After Earnings

Jon C. Ogg

Published: February 2, 2016 10:35 am

Last Updated: January 13, 2020 1:46 pm

Sirius XM Radio Inc. (NASDAQ: SIRI) manages to keep growing and growing. The strong U.S. auto market is making it grow even faster than some of the biggest bulls might have once guessed. Bank of America Merrill Lynch has reiterated its Buy rating on Sirius XM, and the firm sees the stock valued at $5.00. If the firm is correct, Sirius XM shares have about 35% upside.

Merrill Lynch’s Jessica Reif Cohen thinks that Sirius XM essentially filled in the detail on a solid fourth quarter and a very strong 2015. Interestingly enough, the name Howard Stern was not mentioned once in this research report.

Sirius XM reported fourth-quarter consolidated revenue of $1.2 billion (up 10% from a year earlier), above the firm’s $1.19 billion estimate. Quarterly net additions were 634,000 (with 472,000 being self-paid). Self-pay churn was 1.9%, versus the firm’s same 1.9% projection. The company reported adjusted earnings per share (EPS) of $0.03.

Adjusted EBITDA grew 4% from a year ago to $396 million, a tad under the Merrill Lynch expectation of $414 million. The firm believes that the lower than estimated adjusted EBITDA result was driven by higher subscriber acquisition costs and significantly higher general and administrative costs than it had expected. Still, the fourth-quarter result drove adjusted EBITDA for 2015 to $1.66 billion.

Free cash flow declined by 9.5% to $299 million, but free cash flow per share fell by 3%. Sirius XM repurchased $369 million in stock during the quarter, shy of the $475 million that Merrill Lynch expected, as the strong price performance in the fourth quarter kept management from buying back too much stock. Conversely, when the share price fell along with the broader markets, Sirius XM increased the pace of share buybacks in January and repurchased nearly $200 worth of its stock. The company has approximately $1.4 billion remaining under its share buyback plan.

24/7 Wall St.
The Most Innovative Companies