The Path for Sirius XM to Rise Much Higher

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Sirius XM Holdings Inc. (NASDAQ: SIRI) has seen a very muted reaction to what should have been otherwise viewed as a solid earnings report. One issue that may be acting against it is the notion that there has been a “peak auto” trend in place for well over a year now. The continued pressure of the stock market also likely is keeping the excitement muted here. That said, Sirius’s earnings topped estimates and guidance looks quite strong at a time when new car sales might not be what they had been in the recent past.

The satellite radio giant reported earnings per share of $0.07 on $1.47 billion in revenues. The Thomson Reuters consensus analyst forecast was $0.06 per share and $1.46 billion.

While some of the post-earnings news may be focused on guidance, there is also the pending Pandora Media Inc. (NYSE: P) acquisition. The companies maintained that they expect this merger to close in the first quarter of 2019, now that the go-shop period has ended for Pandora.

Sirius’s adjusted EBITDA grew 7% to $589 million and margin increased 25 basis points to above 40%, an all-time high. Subscriber acquisition costs fell again and offset higher royalty fees that it has to pay. The company’s net additions were 198,000 for the third quarter and self-pay net additions were 298,000.

Sirius did manage to raise guidance for self-pay net adds, revenues and EBITDA. Revenue guidance is now approximately $5.725 billion, compared with a prior forecast of over $5.7 billion, and adjusted EBITDA guidance was raised to approximately $2.2 billion from a prior $2.175 billion. The self-pay net adds were projected to be about 1.275 million, versus a prior forecast of about 1.15 million. Sirius maintained that guidance on free cash flow is still expected at roughly $1.5 billion.

Merrill Lynch was the first firm seen to issue a post-earnings report on Wednesday. The firm maintained its Buy rating and $8 price objective, which is handily above the prior consensus estimate of $6.98. The firm expects that Sirius’s operating metrics are healthy and that churn is historically low. Also noted positively are news and improved products and offerings, like the 360L rollout, which began in the first quarter and will continue to ramp in coming years. The firm sees these metrics improving and offering multiple benefits to Sirius.

Sirius shares were last seen down two cents at $5.93 on Wednesday morning, in a 52-week trading range of $5.17 to $7.70. Its shares had opened at $6.05 on Wednesday, but the market index selling pressure has weighed on Sirius as well.