Sirius Shares Pop on 'Overweight' Rating
Theresa McCabe
02/02/11 - 01:39 PM EST
NEW YORK (TheStreet) -- Sirius XM(SIRI) shares rose 6% Wednesday after Morgan Stanley issued an overweight rating on the stock and a $2 price target.
Morgan Stanley analysts David Gober and Benjamin Swinburne expect Sirius to report earnings of $49.7 million, or 1 cent a share on Feb. 24. Analysts polled by Thomson Reuters anticipate Sirius will break even in the quarter.
Sirius reported a pro forma loss in the fourth quarter of 2009 of $25.2 million.
Morgan Stanley gives Sirius an overweight rating as it expects the company's free cash flow growth and strong return of capital in 2012 and 2013 will drive shares higher over the next 12 to 18 months.
The firm believes that Sirius' net subscriber additions will be levered by strong U.S. auto sales. It expects to see continued subscriber growth from both new and used cars, which will drive earnings before interest, taxes, depreciation, and amortization up between 15% and 18% through 2015.
"Despite questions surrounding growing competition like Internet radio and the strength of the consumer, consensus believes that Sirius can sustain subscriber momentum," Morgan Stanley said in a research note Wednesday.
Morgan Stanley expects to see 20% year-over-year growth in domestic car sales as consumer confidence grows. Auto sales are off to a strong start in the new year as new car sales in the U.S. grew 17.2% in January 2011, compared with the same month in 2010, according to Autodata.
"Given the rebound in new car sales, subscriber adds will grow through 2010," Morgan Stanley said. It estimates Sirius will add between 1.3 million and 1.35 million net subscribers in 2011.
Morgan Stanley forecasts that Sirius's total fourth-quarter revenue will come in at $723.6 million, which would be about a 13% increase from its total revenue of $683.8 million in the same period in 2009.
Sirius shares rose 6% to $1.73.
-- Written by Theresa McCabe in Boston.
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