SirusXM Is Not a Sell

Trading at a 10-year high, the stock's performance is indicative of the popularity of satellite radio

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Feb 14, 2017
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Sirius XM Holdings Inc. (SIRI, Financial) showed decent performance in 2016 as the stock was up approximately 10%. The stock is off to a good start this year as well, up almost 7% year to date and currently trading at a 10-year high of $4.76 per share. Most significantly, the company successfully managed to beat all of its previous year’s guidance. As a result, things look pretty good for the stock going forward.

The company reported fourth-quarter results on Feb. 2. In the fourth quarter, the company detailed earnings per share of four cents, in line with estimates. The company’s revenue came in at $1.30 billion, exceeding the consensus by $10 million. That figure also represents a surge of 8.3% year over year.

Sirius XM also offers a dividend of one cent a share, which looks quite feeble but represents a decent dividend yield of 1%. The company reported adjusted EBITDA of $1.88 billion, which signifies a margin of 37.3%. Eighty percent of that adjusted EBIDTA transformed to a record of $1.51 billion of free cash flow.

Over the past few quarters, the company’s top line has been growing at a healthy rate as it endures to add new subscribers each quarter. The company currently has over 31 million subscribers. In the prior quarter, the company added $1.66 million net self-pay subscribers, representing an 18% surge compared to its original guidance.

Moreover, Sirius XM’s overall subscriber gain of $1.75 million was 25% greater than its January 2016 guidance due to robust sales of vehicles equipped with SiriusXM. With each passing quarter, the demand for the company’s exclusive and easy-to-use content bundle is growing.

On the other hand, one of the most important things to notice is that the company’s churn rate, subscribers who stop using the service, sits at just 1.8%. This low rate indicates satellite radio services are still popular and subscribers are in favor of paying for premium coast-to-coast radio coverage.

According to a forecast report from autonews.com, new vehicle sales in the Unites States will remain above 17 million this year, making 2017 the third consecutive year of robust new vehicle sales. Furthermore, the company has ongoing deals with almost every major auto manufacturer, including Aston Martin and Bentley, for installation of satellite radios in their vehicles. This further implies the company has a bright future.

Summing up

SiriusXM ended 2016 in the green and currently trades at 10-year high. The popularity of satellite radio endures to expand, which will certainly prove to be a key growth catalyst for the company. The company also has a robust business model that will help it produce extensive free cash flow in the years ahead.

As an outcome, long-term shareholders should continue to hold the stock to gain more profits in the future.

Disclosure: No position in the stocks mentioned in this article.

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