How Analysts View Sirius XM Upside Now, After Earnings

Sirius XM Holdings Inc. (NASDAQ: SIRI) has kept growing through the hard times and good times. It now seems that the caution in the stock market has made Sirius XM investors a bit more cautious after its earnings report. Its stock lost about 7.5% of its value in the past week alone.

24/7 Wall St. wanted to look at the most recent earnings and guidance from the company. We also wanted to look and see what analysts and market pundits have had to say about Sirius XM since the earnings report.

It turns out that current market valuations of this satellite radio giant might not make Sirius XM a classic value stock. It also turns out that all of the analysts have targets above the current stock price after this pullback, implying value of sorts via potential upside.

Sirius XM reported that its fourth-quarter revenue came to $1.2 billion. This was up 10% from a year earlier. Quarterly net subscriber additions were 634,000, with some 472,000 being self-paid, and its self-pay churn was in line at 1.9%. The company reported adjusted earnings per share (EPS) of $0.03. Adjusted EBITDA grew 4% from a year ago to $396 million.

Higher subscriber acquisition costs and higher general and administrative costs may have weighed a bit on investors. Another issue is that 2015 may have been a peak year for auto sales, now that the economic numbers are continuing to soften. Sirius XM repurchased $369 million in stock during its most recent quarter, but the company increased the pace of share buybacks in January and repurchased nearly $200 worth of its stock, and it still has about $1.4 billion remaining under its share buyback plan.

Bank of America Merrill Lynch reiterated both its formal Buy rating on Sirius XM and reiterated its $5.00 target. Jessica Reif Cohen’s commentary in her analyst report said:

We believe the company remains positioned to drive significant future capital returns, considering leverage of 3.3x (versus 4x target). Other metrics similarly healthy operating results were strong across the board. Churn of 1.9% remained in line with the prior period, while average revenue per user, at $12.75 (up 2%), beat our projection of $12.61. Advertising revenue continued to show strength – rising +20% (versus our 20% estimate) in the quarter. The new vehicle conversion rate slightly declined to 39% (versus our 41% estimate and 40% in the fourth quarter of 2014), while the used car conversion likely also remained in the low to mid-30% range, given the very strong subscriber results.

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