Sirius XM Hits Another High Note

Shares of Sirius XM Radio (Nasdaq: SIRI  ) hit a new 52-week high today. Let's look at how it got here and see whether clear skies are ahead.

How it got here
Sirius XM has seemed unstoppable lately, as Liberty Media's (Nasdaq: LMCA  ) pursuit of majority ownership has pushed shares ever higher. The two companies have virtually moved in lockstep over the past year:

SIRI Chart

SIRI data by YCharts.

Liberty, the parent of Starz, Encore, and the Atlanta Braves, received a 40% stake in the company when it bailed out Sirius XM in its darkest hour in 2009, and it has recently grown that stake to 49.6%. Sirius shares jumped yesterday after the Federal Communications Commission invited comments or petitions to deny the de facto acquisition, which are due by Nov. 1. Liberty has said if the FCC approves the takeover, it will buy up enough shares to give it majority control within 60 days.

While Sirius shareholders may be flattered by Liberty CEO John Malone's interest, it's unclear what will happen to the satellite-radio company should Liberty become the majority owner. Malone has been critical of Sirius XM CEO Mel Karmazin for not expanding internationally or improving its technology. Karmazin, meanwhile, has suggested that he and the rest of the board could be ousted following the takeover. For now, shares seem to have climbed mainly because Liberty has been soaking them up, with many analysts and investors thinking a large share buyback will follow.

What's next?
Some of this enthusiasm could be a bit overblown, as financial acrobatics can propel a stock only so far. While the company has taken formidable strides in recent quarters, adding subscribers at a strong pace and improving its product line with the addition of an on-demand service, there are a number of potential concerns further down the road.

Howard Stern is still the entertainment provider's No. 1 draw, and his contract expires in 2015. He's 58, and many expect him to retire when the current agreement ends.

Sirius XM thus far has thrived in spite of Internet radio specialists such as Pandora (NYSE: P  ) , but competition could heat up in that area, as Apple (Nasdaq: AAPL  ) has announced plans to enter the market. A bill in Congress to lower royalty rates for streaming services, which pay higher prices than Sirius XM, could also provide a boost for the Internet DJs.

Finally, Sirius XM's fortunes are closely tied to the auto industry; a weak economy and the looming fiscal cliff could leave auto sales lagging.

At an adjusted P/E of 24, Sirius shares aren't cheap, not to mention the nearly $3 billion in debt on its books. The recent bull run could continue as Malone swallows up more shares, but Foolish investors may want to keep the long-term threats in the back of their mind even as shares move higher.

For an in-depth look at Sirius XM, grab a copy of our brand-new premium report, which details the opportunities and threats facing the satellite-radio company. As a bonus, it comes with a year's worth of free updates, saving you the time and energy of parsing through earnings reports and other important announcements. Just click right here to get access to this valuable insight now. 

Fool contributor Jeremy Bowman owns shares of Apple and Sirius XM Radio and has sold covered calls on Sirius XM. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. 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.


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  • Report this Comment On October 04, 2012, at 9:15 AM, Stiffly wrote:

    Jeremy-

    You have hit the SUPERFECTA of being WRONG about the potential downsides of SIRI. Auto sales are WAY up (every year), used car penetration is growing, only 5% of people who subscribe to SIRI even listen to Stern anymore AND this legislation to Congress (if and when it ever passes, which it most likely won't), would HELP SIRI AS WELL IF IT DID !!!

    Get it together man, especially before you publish your incorrect thoughts for the world to see on a public forum.

  • Report this Comment On October 04, 2012, at 9:48 AM, Brent2223 wrote:

    "nearly $3 billion in debt on its books"

    Yes, something needs to be done about this, and the plan is to raise more debt.

    Although I suspect you're thinking $3 billion is a bad thing.......

    In terms of royalty, who should pay more as a percentage of revenue, a service streaming 100% music, or a true radio company that's offerings are much broader than just music. Things tend to make more sense when you look at the full picture.....

  • Report this Comment On October 04, 2012, at 10:01 AM, BioBat wrote:

    I'll reiterate Stiffly's comment. Auto sales are now back at pre-recessionary levels and going strong. Many words to describe September sales are "best in years", "skyrocket", etc. They're not slowing down, they're significantly improving.

    And even if they were to drop, SIRI GREW through the worst auto recession in decades so the opinion that SIRI will drop anytime soon has no basis in any fact.

    Oh, and 2015. Really?! You're going to worry about something that might happen 2-3 years in the future for an investment that will probably show significant gains over that time relative to where it sits today.

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