Holding on to shares of Sirius XM Holdings (NASDAQ:SIRI) has been a winning move since the stock bottomed out at $0.05 -- yes, a nickel -- in early 2009. However, after a flat 2014 that saw the shares go from $3.49 to $3.50, it seems as if the stock is starting to motor again.
Shares of the satellite radio provider hit a new 52-week high this week when it hit $3.81 on Wednesday, and it may not be done just yet. Sirius XM is moving higher after a healthy quarterly report last week, followed by Maxim Group bumping its price target higher on Monday.
Sirius XM checked in with $1.09 billion in revenue during the fourth quarter, 9% higher than the prior year's holiday quarter. The biggest driver was a 7% uptick in self-pay subscribers. There are now 27.3 million total subscribers to the premium radio service that's enjoyed primarily in cars, but also on the go through portable and home receivers, as well as Sirius XM's streaming app.
Profitability more than doubled, to $143 million, landing ahead of Wall Street's estimates for the first time in more than a year. Sirius XM was once considered a speculative investment, but it has come through with 16 consecutive quarters of profitability according to S&P Capital IQ data.
Wall Street pumps up the volume
The analysts at Maxim were apparently encouraged by the report, raising its price target on Sirius XM from $4.40 to $5.00. They see greater flexibility for Sirius XM to expand on its already ambitious repurchase efforts.
Maxim sees the satrad darling coming through with another $2.5 billion in share buybacks, building on the $2.5 billion that it spent on repurchases through 2014. It's generating a ton of free cash flow, and has some more headroom before bumping up against its leveraging benchmark -- a debt-to-equity ratio of four.
Maxim sees brisk subscriber growth. Conversion rates have been slipping lately, but more new cars keep rolling off the assembly line with factory-installed Sirius or XM receivers in place. There are 70 million cars out there with satellite radios, and that figure should top 100 million in three years.
This doesn't mean that the stock is the best play on Sirius XM's success. Maxim points out that Liberty Media (NASDAQ:FWONA) -- holding a majority stake in the satellite radio monopoly -- offers a compelling play on Sirius XM. Buying into Liberty Media with all of its other conglomerate investments would be the equivalent of buying into Sirius XM at $2.80, according to Maxim. Even Sirius XM conceded that it was a "theoretical possibility" to earmark some of its buyback dollars into buying its own shares at a discount through Liberty Media when asked about the strategy by a Barclays analyst during last week's conference call.
The road is long
Sirius XM hitting a new 52-week high doesn't mean that it's trading at an all-time high. The stock was going for as much as $4.18 in late 2013. The shares were also trading in the double digits before the service even officially launched 13 years ago; but that was when there were far fewer shares outstanding before recapitalizations, Liberty Media's bailout, and the merger with XM bloated the outstanding share count.
Sirius XM is in a good place these days. Its outlook calls for the subscriber count to hit 28.5 million by the end of 2015. It's eyeing revenue of $4.4 billion, adjusted EBITDA of $1.6 billion, and free cash flow of $1.25 billion. This is no longer the speculative penny stock that made risk-taking gamblers rich in 2009; but it's not too shabby here as a legit media giant possessing a heck of a moat in the booming premium-radio market.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy.