After Upgrade and Debt Sale, Should SIRIUS XM Be Hitting New 52-Week Highs?

Source: Sirius XM
SIRIUS XM Radio Inc. (NASDAQ: SIRI) hit a new 52-week high today.  Make that a multi-year high of $2.50 per share.  The question is whether or not the satellite radio monopoly should be up here by this much a day after its earnings and after a debt sale announcement.

Two things happened, and speculation about another development are all aiding the stock.  The company’s plan to sell $400 million in senior notes will allow SIRIUS XM to repay or repurchase senior debt maturities coming due in 2013.  Moody’s raised Sirius’ credit rating after the refinancing transaction announcement and also a day after its earnings, but the ‘B1’ rating from a ‘B2’ rating is still deep in junk-bond territory.

After good earnings and a raise in guidance for 2012, investors believe that SIRIUS XM can keep growing and growing.  As long as new cars keep selling in the U.S. that may turn out to be true as the fleet is still rather old if you look on a historical basis.

Another issue besides the earnings is that the Liberty Media Corporation (NASDAQ: LMCA) proposed spin-off of Starz is giving hope that a Liberty deal could be reached.  What is interesting is that the hope seems to be that this will be a friendly deal.  If you know John Malone, you know he aims for tax efficiency in all cases.  If Malone somehow gets more than 50% of the formal voting rights, he will have control rather than a state of ‘de facto control’ as he was seeking previously.  That would allow for Liberty to distribute those shares in a what may be a tax-free spin-off to its shareholders.  The problem that should be considered here is what you think will happen if several billion new shares are sent out to thousands and thousands of shareholders all at once on a tax-free basis.  That might bring a “Sell, Mortimer!” situation.

SIRIUS XM shares are up over 7% at $2.48 and the new adjust 52-week trading range is $1.27 to $2.41. Be advised that the consensus analyst price target is $2.60 on SIRIUS XM.


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