Sirius XM Stock Outlook is Hitched to Auto Industry


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The number of Sirius XM's (NASDAQ:SIRI) automotive subscribers has been rising consistently over the past few years led by an increase in light vehicle sales in the U.S. as well as new vehicle penetration. We recently wrote how strong automobile sales have helped Sirius XM increase its subscriber growth by 9% y-o-y in Q1 2011. (See Strong Auto Sales Drive Sirius XM Subs Growth ) We believe Sirius XM's automotive subscribers will continue to grow aided by the long-term deals signed with big auto-makers like General Motors ( GM ), Ford ( F ), and Hyundai. The global economic recovery and tax incentives will also boost car sales thereby benefiting Sirius XM.

Sirius competes closely with Cumulus Media Inc. ( CMLS ) (America's second largest operator of radio stations) and Westwood One Inc. ( WWON ) (the largest provider of audio content in America), as well as traditional AM/FM radio and internet radio offerings from Pandora and Rhapsody.

We have a Trefis price estimate of $2 for Sirius XM's stock , implying a slight discount to the current market price.

Economic Recovery, Tax Incentives Boost Car Sales

With the global recovery in swing, consumers are likely to improve their spending habits. According to a recent forecast by Oxford Economics report, the auto sector will be the fastest growing US industry in the next five years. Tax breaks on vehicles including passenger automobiles, motorcycles, motor homes and trucks will likely spur sales. Additional tax credits for choosing hybrid, fuel cell, alternative fuel and advanced lean-burn technology vehicles will boost automobile sales as well as Sirius' subscribers.

Sirius' Long-Term Deals with Automakers

Every year Sirius XM pays out over $200 million to their OEM partners to keep their radios flowing into the new car market at around a 60% penetration rate.  Sirius XM has ties with major automobile manufacturers such as Ford ( F ), GM ( GM ) and Toyota (NYSE:TM), which help drive its presence in the U.S. automobile space. The company has also entered into a partnership with Hyundai wherein consumers across the United States will receive a 3-month introductory subscription to XM when they purchase Hyundai Certified Pre-Owned vehicles equipped with XM. The tie-up between Sirius XM and Hyundai will offer Hyundai customers access to more than 170 channels of commercial-free music programming, sports, news, traffic updates and weather information. (See How Much Does Hyundai Partnership Add to Sirius XM Stock?)

Buybacks Could Support Shares

Aside from depending on the auto industry, buybacks could give the stock some support. Sirius's CEO has indicated that Sirius could put its free cash flow to use by buying shares or through cash dividends - though we don't think this could happen before 2012. Many investors holding long position in the stock are looking forward to Q2 2011 results in August when they hope guidance on earnings and on SatRad 2.0, the next generation satellite radio, will add a catalyst.

Our complete analysis of Sirius XM.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: CMLS , F , GM , P , WWON

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