Researchers Think Clear Skies Remain Ahead for Sirius XM

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Sirius XM Holdings Inc. (NASDAQ: SIRI) has become a stock that is looking for direction, and maybe looking for its “next next-thing.” Sirius XM reported that its first-quarter net income totaled $171.3 million. This translates to $0.03 in earnings per share (EPS), which met the consensus estimate. Revenue was $1.2 billion in the first quarter. This compares to $1.08 billion a year ago and also beat the consensus estimate of $1.18 billion.

On the growth front, Sirius XM added 465,000 net new subscribers in the first quarter. The company further said that it now expects to add close to 1.6 million new net subscribers in 2016, which is about 200,000 higher than the company’s initial forecast and guidance. The question now is whether the car market remains strong or whether 2015 was “peak auto.”

While Sirius XM forecast 2016 full-year revenue of $4.9 billion, there are not many services that have this many subscribers who pay monthly. And as far as new competition, this just hasn’t come from the likes of Pandora and others like many feared. Another interesting issue for Sirius XM is that once you get it, it’s hard to go back to plain old local radio with all the ads.

24/7 Wall St. wanted to see what analysts have to say about the Sirius XM report.

Bank of America Merrill Lynch’s Jessica Reif Cohen maintained a Buy rating and a $5.00 price objective on the stock. Her report noted:

After pre-announcing solid subscriber net additions on 4/11, Sirius XM reported first quarter financials with revenue, EBITDA and free cash flow (FCF) ahead of our estimates. Consolidated revenue was $1.2 billion (up 11% year over year), while adjusted EBITDA of $441 million (+11%) was above our projection of $434 million (+9%). Sirius XM raised its total subscriber guidance for the year to 1.6 million net additions due to an increase in paid promotional net adds.

Our $5.00 price objective is based on a DCF valuation, supported by our expectations of strong revenue, EBITDA and FCF growth. Our DCF is based on a WACC of 7% and perpetual growth of 2.0%.

Wunderlich Securities reiterated its Buy rating on Sirius XM as well. The firm raised its price target price to $5.00 from $4.60 in the call.

Here is how three other analysts saw Sirius XM after earnings in February:

  • S&P Capital IQ maintained a Hold rating while trimming its 12-month target price from $4.50 to $4.00.
  • Deutsche Bank kept its Hold rating but lowered its price target to $4.25 from $4.50.
  • RBC Capital Markets maintained its Sector Perform rating but lowered its price target to $4.25 from $4.50.

Sirius XM shares traded up at $4.03 in active trading on Thursday morning, but the shares were trading at $3.95 on Friday’s close after the market had given back some.

For the past two years, we have seen Sirius XM shares trade in a range of $3.25 to $4.00 for about 90% of the time. Its 52-week range is $3.29 to $4.20, and the consensus analyst target price was $4.53.