By Demian Russian
Following Sirius XM’s (NASDAQ:SIRI) Q2 earnings, BGB Securities Media Analyst Murray Arenson issues a new research report reiterating his previous BUY rating and $2.40 price target on the equity. While Arenson describes the company’s second quarter as “generally in line with expectations”, he notes stronger Free Cash Flow and points to management’s raised guidance for both FCF and subscriber growth, as well as their reaffirmation of plans to return capital to shareholders. Arenson expects the company to begin buying back its stock in 2012.
In a relatively uneventful quarter, we believe the company demonstrated the strength of its operations and its model with strong subscriber growth against diminishing subscriber acquisition costs (SAC). Sirius provided more details regarding its SiriusXM 2.0 launch expected to begin later this year. In our opinion, Sirius is well positioned for future growth and to compete against emerging Internet music offerings.
– Murray Arenson, BGB Securities
Arenson sees Sirius XM’s ability to compete and strength to grow based on service (personalization and control features), pricing (bundling and packaging), availability (new and pre-owned vehicle penetration), and technology (satellite, IP, and wireless connectivity).
In light of the recent Pandora (NYSE:P) IPO and Spotify’s launch in the U.S., Arenson sees investors “particularly focused on the competitive aspects of the Sirius offerings.” While Arenson believes that it’s prudent for investors to be aware of the competitive landscape, he sees Sirius XM as differentiating itself from “Internet-only” and “music-only” services with its accessibility in the car and advantages content.
While Sirius XM has agreed not to raise prices through the end of the year, as part of the proposed settlement in the Blessing class action suit, Arenson expects the company to implement a price increase in 2012, along with some “re-packaging and bundling of service options.” Arenson is “conservatively” forecasting full-year 2012 ARPU growth of $0.21, allowing time for the penetration of a base increase.
Arenson has updated his SIRI valuation analysis. On a per subscriber basis he accounts for the SAC ”necessary to maintain long-term growth” and factors in the value of the NOLs after viewing FCF fully taxed. Based on his 2012 assumptions, Arenson arrives at value of $697 per subscriber, in line with his current $2.40 price target.
Murray Arenson will be the special guest on Playground Radio for an exclusive, live interview on Wednesday, August 10th, 2011 at 8:00 pm ET.
Disclosure: Long SIRI
Contact the author: DemianRussian@SatelliteRadioPlayground.com
I really appreciate you guys at Satelliteradioplayground. You are the only ones interviewing the analysts. After all, they are the meat of stock analysis. They are the reason the stock is where it is. Other analysis is only the buns. Thanks.