Sirius Rallies on Heavy Volume
Theresa McCabe
02/16/11 - 01:50 PM EST
NEW YORK (TheStreet) -- Sirius XM(SIRI) shares were surging more than 9% on Wednesday after dropping more than 6% on Tuesday following the release of the company's fourth-quarter earnings report.
More than 98.5 million shares had traded hands by mid-afternoon on Wednesday, surpassing the stock's three-month daily average volume of 53.9 million shares. The stock was up 9.2%, or 15 cents, to $1.84.
The satellite radio company reported a loss of $81.4 million, or 2 cents a share, during the quarter as operating service expenses rose and it paid off a major portion of its debt.
A year earlier, the company earned $11.8 million, or breakeven on a per-share basis.
Investors were gaining confidence on Wednesday after a number of analysts reiterated their bullish outlooks on the satellite radio company.
Barrington analyst James Goss reaffirmed his outperform rating on the stock and raised his quality rating to aggressive from speculative in a research note to investors on Wednesday morning. He also upped his price target on the stock to $2.40 from his prior $1.85 after its dip on Tuesday.
"We view the decline in the price of Sirius following the release of 2010 results as an opportunity to add to positions or establish new ones," Goss said. The company met all of Barrington's "key objectives" from both a financial and operational perspective.
"The only major metric that did not come fairly close to our estimate was the EPS figure, which was weighed down by an impairment charge related to the write-down of a satellite that will not be used plus charges related to early extinguishment of debt as management continues its process of taking out older higher cost secured debt issues in favor of lower cost unsecured offerings," Goss said.
Excluding debt extinguishment and restructuring charges, net income attributable to Sirius stockholders for the fourth quarter would have been $64 million, up from $18 million for the same period in 2009.
Analyst David Gober with Morgan Stanley increased his bull case estimates and valuation, as he predicts the company will add between 1.5 million and 1.6 million net subscribers in 2011.
"We continue to see upside to consensus estimates and initial management guidance for 2011 as auto sales recover, driving continued growth in Sirius' net additions," he said in a note to clients on Wednesday.
The company's subscriber base climbed to 20.2 million subscribers at the end of 2010, up from 18.8 million at the end of 2009.
Sirius added 328,789 net subscribers in the fourth quarter, up from net subscriber additions of 257,028 in the fourth quarter of 2009.
"Sirius XM's results in 2010 were exceptional, surpassing our guidance and achieving record revenues, adjusted Ebitda and free cash flow. Our unparalleled content and the continuing improvements in the economy helped us attain a record-high subscriber base of 20.2 million," Sirius XM CEO Mel Karmazin said in a statement Tuesday.
Sirius management predicts that 2011 full-year revenue will come in at about $3 billion, and forecasts adjusted at $715 million.
"With continuing improvements in auto sales, and self-pay churn and conversion rates for 2011 similar to our strong performance in 2010, we expect to grow our net new subscribers by another 1.4 million in 2011, continuing our track record of solid subscriber growth," Karmazin said.
Gober provided a higher new subscriber estimate based on his prediction that there will be a total of about 13 million auto sales in 2011, compared to Sirius' forecast of about 12.5 million.
"Additionally, we note there is further upside given Morgan Stanley auto team's vehicle sales estimates of approximately 14 million in 2011," Gober said.
He forecasts that the company will generate $1 billion in free cash flow by 2015 and begin returning capital to shareholders in 2012 or 2013. Gober has an overweight
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