Sirius XM (SIRI) has had a great 2013, with the satellite radio stock up 37% year-to-date. Longer-term, SIRI is up 110% since January 2012 and Sirius stock is up a staggering 3,000 from its 2008-09 lows.
However, Sirius stock is approaching an important earnings report in October. So will the news derail the rally in SIRI, or can investors expect strong numbers that boost Sirius stock even higher as we close the year?
All signs point to a pretty decent quarter for the company given its previous success, with Sirius XM earnings posting continued improvement in its top line and decent profits. Furthermore, a recently announced repurchase plan for SIRI stock will keep earnings per share strong in the coming quarters, too.
SIRI Outlook Is Strong
Sirius stock, for the record, is a highly volatile issue that trades a lot like a penny stock despite its $22 billion market cap. That’s because SIRI trades for under $4 a share even after its massive run-up from the lows, with daily volume that regularly tops 40 million shares traded.
But that doesn’t mean investors can’t make a bundle on Sirius stock, as evidenced by the big run-up during the past few years. As long as you know what you’re buying, playing this streaming radio giant can be a profitable investment.
And right now, the tailwinds pushing SIRI higher include:
Strong Vehicle Sales: Automakers including Ford (F) and General Motors (GM) have had great years, with sales picking up amid an overhaul of some vehicle models. And on top of strong U.S. auto sales in 2013, forecasts of more than 16 million vehicles for 2014 would put totals above 2007 levels. Sirius XM Radio packages are included with new vehicles — a powerful way for SIRI to find new customers. As long as car sales are strong, subscriptions will be, too.
Internet Radio: Investors should note that Pandora (P) and the emerging iTunes Radio from Apple (AAPL) aren’t the only streaming options for consumers. Sirius XM built out its Internet radio offering in 2011 and has seen decent traction with it after building on a user base of 25 million subscribers. There is clearly upside here on the streaming front beyond the legacy satellite radio biz.
$2 Billion Buyback: SIRI just announced an additional $2 billion stock buyback plan, including an agreement to buy back some of the stake from Liberty Media (LMCA). This comes after previous efforts that have resulted in about $1.6 billion in buybacks to date. That will help EPS trends longer-term, but more importantly, the message that Sirius has cash it can deploy for repurchases — and that it is buying out a major stakeholder like Liberty — speaks to the strength of the balance sheet and confidence of management.
Sirius Earnings: A number of factors like strong auto sales and a decent consumer recovery should boost Sirius earnings on Oct. 24. Remember, the company has posted year-over-year revenue increases like clockwork since the Great Recession and hasn’t posted a quarterly loss since 2010. SIRI shares are flirting with 2007 highs, and options volume in anticipation of earnings is focused on calls more that puts — signaling Wall Street’s bullish outlook.
There obviously are risks to Sirius stock, including the threat from Pandora pushing into the vehicle market or a general disruption from Internet radio and mobile music players longer-term. And bigger-picture, an economic downturn that saps vehicle sales in 2014 could also cause pain for SIRI.
However, in the short-term, things are looking up for the streaming radio giant. SIRI investors would be wise to take partial profits if they are sitting on big gains, but given the volatile nature of Sirius stock (and thus the volatile nature of many of itsinvestors) it seems more likely that these bullish signs will simply be incentive to let this horse — er, dog — run.
Related Reading on SIRI
- Sirius stock buyback plans. (PR Newswire via MarketWatch)
- Beth Gaston on SIRI options volume as we approach earnings. (Schaeffer’s Investment Research)
- The flip side: Brian Nichols likes Pandora over Sirius XM. (The Motley Fool)
- The official SIRI earnings 10-Q from July. (SEC.gov)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.