Why One Analyst Sees 40% More Upside in Sirius XM After Earnings

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SiriusXM Holdings, Inc. (NASDAQ: SIRI) released its most recent quarterly results before the markets opened on Wednesday. While Investors have cheered on this stock in recent months, they may have more reason to cheer it higher as one analyst sees roughly a 40% upside in the stock.

Despite a 2,000 point gain in the Dow from the lows at the start of 2019, Sirius XM is hardly changed. Sirius XM was at $5.71 at the close of 2018 and was trading at $5.74 on Tuesday ahead of earnings. Now shares are above $5.90 after the earnings report and one analyst sees Sirius XM rising to $8 over the coming year.

As for the earnings, the SiriusXM reported that it had $0.06 in earnings per share (EPS) and $1.5 billion in revenue, compared with consensus estimates that called for $0.06 in EPS and $1.48 billion in revenue. The same period from last year had $0.03 in EPS and $1.4 billion in revenue.

This company continues to benefit from declines in subscriber acquisition costs, which decreased 7% in the fourth quarter and 6% for 2018. Self-pay net additions, which were pre-announced for 4Q, were up 414,000 and total net adds were 346,000 after accounting for a net loss of 68,000 of paid-promotional subscribers.

Advertising revenue continued to show strength with 22% growth was well above Merrill Lynch’s +10% estimate. The new vehicle conversion rate declined modestly to 38% (vs. the firm’s 39% estimate and 39% in last year’s fourth quarter) and used car conversion was in the high 20% range.

Revenue guidance remains “approximately $6.1 billion”, adjusted EBITDA and free cash flow guidance remain “approximately $2.3 billion” and “approximately $1.6 billion”, respectively. SiriusXM anticipates net self-pay subscriber additions “approaching 1 million”.

Merrill Lynch gave its current estimates as:

  • Self-pay net adds of 1.010 million.
  • Revenue growth of +6.3%, to $6.1 billion.
  • Adjusted EBITDA growth of +5.9%, to $2.330 billion.
  • Free cash flow of $1.62 billion.

Merrill Lynch maintained a Buy rating with an $8 price objective, implying an upside of 39% from the most recent closing price of $5.74. The brokerage firm went on to say in its report:

In 2019, we expect smart speakers to be provide incremental net add growth (potentially as much as a few hundred thousand net adds) as SiriusXM continues to benefit from its existing relationship with Amazon Alexa and also expands availability to other smart speaker providers. For 2019, the company plans to add 100 streaming channels to its app and further develop the video offering by adding content beyond just Howard Stern, which will drive improved engagement (as well as benefits from social media). SIRI also announced it will be become standard on all Toyota vehicles in the US beginning with model year 2020 taking vehicle penetration from about 75% currently to 80%.

As a reminder, Merrill Lynch is currently acting as financial advisor to Sirius in connection with its proposed acquisition of Pandora, which was announced back in September 2018. Pandora shareholders have approved the acquisition and SiriusXM expects the deal to close February 1.

Shares of SiriusXM were last seen up about 4% at $5.97, with a 52-week range of $5.48 to $7.70. The stock has a consensus analyst price target of $7.04.