Sell Sirius XM Ahead of Earnings?

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Shares of Sirius XM Radio (Nasdaq: SIRI  ) hit two bucks yesterday, but a Wall Street analyst is giving his two cents worth of caution this morning.

Lazard Capital's Barton Crockett -- who has a $2 price target on the satellite radio giant -- is downgrading the stock. Crockett is going from buy to neutral, pointing to Liberty Capital (Nasdaq: LCAPA  ) as the smarter play. Liberty Capital owns a 40% preferred share stake in Sirius XM that is worth roughly $5 billion at the moment.

Crockett isn't the first analyst to suggest Liberty Capital over Sirius XM. The argument has been raised time and time again over the past two years. The point has been moot, though. Both stocks have managed to pull off market-thumping returns. It's a matter of choosing one gold-paved road over another.

Is Crockett simply trying to steer his clients out of the stock ahead of next week's quarterly report? He might be, though it's not as if he expects a bombshell out of the satellite radio star. Sirius XM reports come Tuesday morning, and analysts see a profit of $0.01 a share on revenue growth of 10%.

These are conservative targets. Sirius XM has been largely profitable over the past year and change. The top-line mark is also achievable. It's true that the addition of music royalty fees in the latter half of 2009 contributed to more than half of last year's 14% revenue spurt. The royalty boost no longer exists as a way to pad revenue. However, there are a few catalysts that can keep the top line chugging along nicely.

  • New auto sales remain robust.
  • Conversion rates and churn continue to trend favorably.
  • The first quarter was the first time that Howard Stern's show became available through Sirius' smartphone app.

The last point is important. Sirius XM rolled out a premium streaming app for Apple (Nasdaq: AAPL  ) iOS devices two summers ago. Applications for Research In Motion (Nasdaq: RIMM  ) and Google's (Nasdaq: GOOG  ) Android smartphones followed. Premium streaming didn't really catch on because users forking over serious money for costly data plans are unlikely to spend even more for buffered audio. However, another setback was that Stern's iconic channels weren't part of the package. Stern 100 and Stern 101 were made available on smartphones in January as part of Stern's new five-year deal. We'll see whether the offering has gained any traction.

Even if Crockett isn't worried about Tuesday's numbers, why bail? Didn't he learn from Wunderlich's untimely downgrade last month at a much lower price point?

He could have a sense of history. Sirius XM's stock has been rallying lately. As I pointed out late last year, Sirius XM has a tendency to pop higher on earnings when the stock's been sluggish -- and fall back when the stock's been hot. In other words, the recent sprint toward the ballyhooed $2 mark may be discounting even a blowout quarter.

CEO Mel Karmazin has ammo to overcome the potential letdown. He could point to higher subscription prices when Sirius XM 2.0 becomes available later this year. He could reveal strong smartphone streaming accounts post-Stern. Silence may result in a slight dip on Tuesday, but Sirius XM continues to trend higher in the long run.

A lukewarm analyst doesn't change that.

How do you think the market will respond to next Tuesday's quarterly report? Share your thoughts in the comment box below.

Google is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor choice. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a subscriber to Sirius. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 27, 2011, at 2:35 PM, BlueDevil05 wrote:

    There will be profit-taking starting about now and going through earnings that will take the stock price down to about $1.85 where it'll settle into a trading range until another runup occurs going into Q2 earnings.

  • Report this Comment On April 27, 2011, at 2:59 PM, SuperJack62 wrote:

    Crockett's downgrade is based upon the fact that he doesn't have a clue as to what the stock will do and it is better to be safe than sorry.

  • Report this Comment On April 27, 2011, at 3:01 PM, Austin77478 wrote:

    Blue, what about if it does not go the way you projected it?

  • Report this Comment On April 27, 2011, at 3:21 PM, doubting wrote:

    Analysts like Barton are a bunch of shameless individuals who care more about cya than reality. And the reality is such that sirius has been rallying strongly even without breakthough news whereas Baton's target was only $2. "How come!", Barton is thinking, "my 12 months target is only $2 while sirius is already at $2. No", he ruminates, "I am not that stupid", let ME show them that I am right and they are wrong". So, he downgrades sirius to hold. This move is childish and laughable. What are you trying to fix, Barton? Reality!!! It is as clear as there is day and night that the real news is not even seeping through. Karmazin has a super tight lid on everyhting. Come August, sirius will hike the price by $2 and about $500M of new money will go to the bottomline as early as 2013, let alone additional couple hundred million in 2012. To think that auto industry and economy will not be recovering is naive. If sirius could add over 1.4M new subs last year, it will be able to improve this number this year even with Japan's earthquake effect. The economy is doing better whatever you say, Barton. Although we do expect Q1 numbers in the range of 335,000, it is still an estimate that may be wiped out by much better results. Later in the year you can add sat radio 2.0 impact, further after market and mobile penetration, improved retail sales effect as a function of economy and sat radio 2.0, and you've got so much momentum that Barton will have to go and analyze his own persona. These analysts need to realize one simple truth: old times of the two companies killing each other in pursuit of every talent and sports contract are gone and new times are in. Wake up and stop dreaming your sirius nightmares, Barton!!! It is day, a bright day, it is sirius's day no matter what you downgrade or profess. Yes, it took sirius too long but it is over now. You will never be able to stop progress, Barton.

  • Report this Comment On April 27, 2011, at 4:32 PM, Fredlee009 wrote:

    The only thing this guy is steering his clients, is out of cash. Recommending LCAPA at the time he did over the 100% times better play Sirius XM has cost his customers profits. Hes already cost his current clients 1 cent. And counting. Guy is a scumbag, who downgraded before earnings, not to be cute, or be clever or help anyone, he did it cause he wanted the stock lower, obviously, and someone told him to say that. HIs recommendation with a buy rating before, then saying not to buy the stock says it all.

    SEC should investigate this guy.

  • Report this Comment On April 28, 2011, at 11:09 AM, southernbeachguy wrote:

    Just another Analyst that is losing money for his clients. I have been hearing the same stuff for 2 years and Sirus has gone up, up up. Morgan Stanley just upgrade Sirus..... this Lazard guy downgrades.

    Since the Lazard guy has been wrong for 2 years...... I wouldn't listen to anything that they say about Sirus or any other stock. The fundamentals of Sirus are great, they are continuously adding customers and NUMBER 1 is that this is all reoccurring Revenue. It takes very little capital to retain these customers.

  • Report this Comment On April 30, 2011, at 12:50 PM, eiswien wrote:

    analysts, Why do ppl listen to them? B/C ppl are too stupid or lazy to figure it out for themselves?

    Yes, partially, but no. It is b/c the brokers, the news, the analysts, and the rest of THEM have trained us that "you should hold on while the market it crashing" - forget that you are losing your entire investment (and THEY are taking your money through short interests only to come in and buy your shares once you have had enough and tell your broker to go F8 himself and you sell at a total loss. Or "the analysts say ____ so you have to buy or sell this stock when they tell you" and meanwhile the analyst is getting paid through stock tips, inside information, and fat consulting contracts by those who are on the backend. Not to mention those who are competitors to the company that got or is getting gutted by the schmack these "advisors" are writing who are also usually short the issue through their wife's account or other such arrangment..

    That is why analysts exist; to munipulate the market to churn profits for brokerage houses and the high end players who take great profits from that same churn.

    This is a good stock based on some simple reasons; (these reasons used to be called fundamentals before the media put their spin on all this and fundamentals became passe and were replaced with hype from analysts and other such "pimps")

    My opinion - here goes:

    -it is a solid company with solid, serious, experienced management team.

    -the product is a good product and viable. (the product is - for those of you analysts who dont understand- commerical free radio delivered by satelite. Like cable was supposed to be but only in a pure form). (Pink Floyd music in the backround singing "remember when you were young?")

    -The company is making money, paying off its debt, and planning growth and improvement.

    -the stock has moved steadily upward over the last few years and will do so for the foreseeable future. (In spite of Stern and his whole circus act.)

    -ppl want to use this service b/c it has value and will pay for it. Yes, ppl like the product so they will buy it.

    - Oh, and did I mention that it is the only one of its kind? Monopoly if you like. Monopolies rarely fail unless they become obsolete.

    (Dont mention any of that pandora stuff either, we listened to that last night after dinner in the back yard accross a freinds iphone on a good quality dock and the reception seemed to improve at every commercial and then fade back to spotty at best with static. Did i mention teh commercials...? many commercials. really, I mean alot of commercials, but you can pay $40 month to get rid of the commercials but ---- you get the point)

    - SIRI will probably start streaming thier own broadcasts over inet and other media soon as well.

    much more to say on this.

    PS> Southernbeachguy - your comments here and on other articles has been right on. This issue is a money maker for all involved including the subscribers.

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