It was another eventful week for the only satellite-radio provider. Shares of Sirius XM Radio (NASDAQ: SIRI ) briefly hit $3 for the first time in more than three years, closing 1.4% higher on the week. That was enough to beat the Dow, though the tech-heavy Nasdaq did manage to close out the week with a 1.7% gain.
What happened on the Sirius XM front this past week? Well, beyond hitting the $3 milestone, Sirius XM announced an interim CEO that gave Mel Karmazin an option to leave the company early. Goldman Sachs also initiated coverage with a bullish opinion and a $3.50 price target. Zacks Equity Research reaffirmed its cautious neutral rating.
Let's take a closer look.
Phonier than a $3 bill
It took a whopping 57 months, but Sirius XM reclaimed the $3 milestone. This wasn't exactly a round trip to nowhere. Keep in mind that Sirius XM issued the equivalent of 2.7 billion shares through the preferred share stake it awarded Liberty Media (NASDAQ: STRZA ) in 2009. Based on 2008's outstanding share count, $3 now would be the market cap equivalent of more than $5 back then.
So this ia a big achievement for Sirius XM. Remember when the it was considering a reverse stock split because it wasn't in compliance with Nasdaq's listing requirements? Remember when shares were trading for $0.05 and the company was on the cusp of filing for Chapter 11 bankruptcy protection?
The media giant has come a long way.
Goldman sees gold
Goldman Sachs analyst Matthew Niknam initiated coverage of Sirius XM with a buy rating and a price target of $3.50. Niknam's bullish view is backed by his thesis that Sirius XM will be buying a lot of its shares back in the coming years. Sirius XM announced the authorization to buy $2 billion worth of its stock, but the analyst sees that merely as the beginning. He thinks Sirius XM will repurchase 20% of its stock in the next three years and 45% within 10 years.
Niknam is also encouraged by the strength in the auto market, though investors may not see it that way. Shares of Ford (NYSE: F ) and General Motors (NYSE: GM ) are trading well below where they were two years ago. Cynics had a field day with the Treasury Department's plan to sell back some of its GM stake to the automaker at a loss earlier this week.
Investors aren't souring on automakers just because of the bailout, though. Ford backed away from the bailout, yet both stocks have shed roughly a third of their values since the end of 2010. However, there's a disconnect between share price and performance. Car sales really have been trending higher for the past couple of years, and that benefits Sirius XM as drivers replace their old receiver-less cars with new ones that have access to Sirius or XM.
Zacks Equity Research wasn't as upbeat as Goldman Sachs. It's reaffirming its neutral rating on Sirius XM. Zacks thinks the tough economy and stiff competition from Pandora (NYSE: P ) and Pioneer's new AVIC-X920BT Web-friendly car stereo system will challenge the company's growth. It doesn't seem to matter that Sirius XM has had no problem growing as Pandora has gone from zero to more than 60 million active users.
Then again, it wouldn't be Sirius XM if we didn't have some naysayers to serve crow to in a few months.
Counting down to 2013
There weren't any announcements about the radio discovery service that Sirius XM had earlier said might be coming out in late 2012. Sirius XM has historically been pretty good about living up to its target dates. It managed to get both Sirius XM 2.0 receivers out last year in 2011 as originally promised.
We still don't know a lot about the personalized radio service, but it could be a game changer. It's not just that Pandora has proved that folks love to discover new music as streams. Taking a page out of the Pandora playbook -- at a time when Sirius XM charges its existing receiver-based subscribers just $3.50 a month to add online access -- will help retain subscribers and get them to pay more every month.
The clock is ticking, but Sirius XM wouldn't have it any other way.
Running of the bulls
I recently put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors who are both long and short the dynamic media giant. A year of updates is also included with the report. Click here to check it out now.