Sirius XM Has Had a Wild Ride in 2012

The first half of 2012 is in the rearview mirror, and investors are gearing up for what looks to be an action-packed ending. There are bound to be some big winners -- and more than a few duds -- no matter what happens in the United States and abroad.

Will your favorite stock have its victory lap as we hit the home stretch, or will it get passed by? First-half performances can hold some clues, so let's look to the recent past to find out whether Sirius XM (Nasdaq: SIRI  ) deserves a place in your portfolio going forward.

First-half recap
Sirius XM has managed to eke out a slight gain in 2012, riding a bounce into July after whipsawing wildly through much of the spring:

SIRI Total Return Price Chart

SIRI Total Return Price data by YCharts

Here are a few financial snapshots of its recent performance.

Statistic

Result

Market Cap $8.0 billion
TTM Revenue $3.10 billion
TTM Net Income $457 million
TTM Free Cash Flow $438 million
Most Recent Quarterly Revenue $805 million
MRQ Net Income $108 million
MRQ Free Cash Flow $15 million
MRQ Revenue / Net Income Y-o-Y Change 11.2% / 38.5%
P/E and Forward P/E 29.8 / 16.1
Price to Free Cash Flow 18.3
Motley Fool CAPS Rating (out of 5) ** ( find out more )

Source: Morningstar. TTM = trailing 12 months. MRQ = most recent quarter.

What the numbers don't tell you
Sirius steamed into the year with a big subscriber boost, notching 1.7 million more subscribers at year-end than it claimed at the start of 2011. The company got some bad news from marquee performer Howard Stern soon after. The controversial shock jock -- who might be going deaf -- claimed he would almost certainly leave the industry after his contract expires in 2015. Sirius also brought Ziggy Marley on board this winter, but that's unlikely to be an effective counterweight to Stern's departure. Sirius also got a measure of relief this year when Stern's long-running lawsuit was finally tossed out of court in April.

The company's first earnings report in 2012 was a mixed bag, but that didn't stop shares from climbing to April highs. Subscriber growth guidance was set at 1.3 million new accounts by year-end, which would total 23.2 million if all goes according to plan. Its first-quarter earnings report boosted that guidance to 1.5 million, as 405,000 new subscribers had already joined by the first three months of 2012. The latest numbers, as of the second quarter, were just over a million new subscribers so far this year. Still, Sirius was only willing to boost its year-end guidance to 1.6 million, which seems like a real lowball estimate now.

Sirius hasn't been without its threats and challenges. Near-majority stakeholder Liberty Media (Nasdaq: LMCA  ) will soon own 46.2% of the satellite-radio superstar, and Liberty leader John Malone has been pushing hard to increase his level of control over the company. Warren Buffett's Berkshire Hathaway (NYSE: BRK-B  ) gave Liberty a silent seal of approval this year by acquiring a 1.7 million share position in the holding company.

In-car entertainment alternatives are also finally starting to compete. Pandora Media's (NYSE: P  ) moves in the streaming-music sphere are well-known, to say nothing of its large listener base. Verizon (NYSE: VZ  ) also decided to dip its toe into in-car entertainment when it bought connected-car technology leader Hughes Telematics. And startups such as Songza could also be a threat to Sirius (and Pandora) down the road.

Sirius has made great strides since the dark days of 2009. Since becoming profitable again, it's not only managed substantial net income growth, but it has also seen its P/E shrink to a rather humdrum 26.1:

SIRI Total Return Price Chart

SIRI Total Return Price data by YCharts

At this level, Sirius may well have more upside than downside, particularly if its strong subscriber growth keeps forcing the company to issue higher guidance every quarter. Longtime Fool Rick Munarriz offered three strong reasons to buy Sirius earlier this month, and they're well worth considering if you're looking to start a position or add to your stake. However, Sirius maintains the high levels of debt it took on to stave off bankruptcy, which could be very dangerous if credit markets freeze up again, or if interest rates start rising before Sirius has its repayment plan down pat.

Warren Buffett has staked his claim in Liberty Media, but it's not the only company he has his eye on. There are a number of beaten-down stocks on his radar that could yield Sirius-like growth when the market recognizes their potential. Don't miss out on "The Stocks Only the Smartest Investors Are Buying," an exclusive Foolish free report that has several great (and overlooked) stocks you can buy right now. Find out more before the market catches on.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more news and insights. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (0)

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 July 21, 2012, at 10:25 PM, doubting wrote:

    Concerning sirius's debt, I can say the same thing about dtv or comcast and hundereds of other companies that are loade with tons of debt.

    The author is missing a very important point that sirius's debt is a non issue because it is easily manageable. To illustrate, first serious chunk of debt of about $780M is due in August 2013. Sirius could technically pay it now because with the second Q of 2012 it should have in the bank over $900M.

    Another point the author is missing is that sirius is already profitable, with 2011 profit being around $460M. In 2012, its profit will most likely exceed $600M, let alone fcf that will be about $750M.

    To conclude, the author ovelooked for some unbeknown reason two fundametally important factors - (1) siri can address its debt situation without any stress and (2) based on the current growth trend, the company will be "filthy" cash rich. I can safely project sirius generating over $10B in the next six years. These are the parameters that any thinking investor should pay attention to rather than to hallucinatory competition and rigged debt issues.

  • Report this Comment On July 21, 2012, at 10:35 PM, mossyrock83 wrote:

    'Since becoming profitable again...'

    Sirius has remained profitable since it first became profitable.

    But we know it was simply a segway into another motley fool promotion.

  • Report this Comment On July 21, 2012, at 10:55 PM, TMFBiggles wrote:

    @ Mossyrock83 -

    You're correct. The "again" is superfluous. My apologies.

    - Alex

  • Report this Comment On July 23, 2012, at 4:41 AM, orderartwork wrote:

    Pandora: Which analyst should you believe?

    When Pandora IPO:

    Citigroup (C) analyst Mark Mahaney buy rating and $25 price target as a main underwriter on Pandora's IPO;

    It's also no surprise that fellow underwriters William Blair and Wells Fargo Securities also initiated coverage of Pandora on Monday with outperform ratings. Stifel Nicolaus, another underwriter on the initial public offering, started coverage today with a hold rating on Pandora.

    Similarly, IPO underwriter Morgan Stanley (MS) began coverage of Pandora with a hold rating with concerns about the company's path to profitability. Still, with a target price of $20, Morgan Stanley analysts are predicting some upside to the stock.

    This hasn't dissuaded JPMorgan (JPM) analyst Doug Anmuth from initiating the stock with an overweight rating and $22 price target, as he believes strong user growth will be followed by greater mobile monetization.

    Outside of Pandora's underwriters, the story is much different. The stock has a few other fans on Wall Street who rate it buy, but firms like Albert Fried & Co, Capstone Investments, and BTIG say investors should dump shares.

    BTIG analyst Richard Greenfield has a 12-month price target of $5.50, saying that while the company offers a "great consumer service," its business model "does not scale in the same way as other successful Internet businesses."

    Similarly, Albert Fried research director Rich Tullo praises Pandora as a great service, but notes that "great companies do not always offer attractive returns for equity investors. We have concerns about Pandora's financial statements in the near term and its long-term ability to monetize its user base." Tullo has a sell rating.

    Capstone Investments analyst Paul Meeks is also bearish with a sell rating. Meeks says "it's an Internet shell game," arguing that management, underwriters and Pandora bulls stay focused on the growth of users and listener hours while ignoring profits and cash flow.

    That shouldn't come as a surprise for a company struggling with the same problems Internet companies have struggled with for more than a decade: Will user growth lead to more revenue, and can that revenue be turned into profit?

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