Sirius XM: January New Car Sales Estimated To Jump 15%

Jan.29.13 | About: Sirius XM (SIRI)

On Monday, released its January 2013 new car sales forecast, and it is projected to be up 15.1 percent from this same time last year. This translates into a Seasonally Adjusted Annual rate, or SAAR of 15.4 million, up from 14.0 million in January of 2012. This is great news, considering that new car sales last year were historically high. Sirius XM (NASDAQ:SIRI) radio relies heavily on the success of the automobile industry, since the majority of its new radios sold are factory-installed in new cars. So, the more cars that are sold in the United States, the more potential there is for increasing the subscription count, and more subs translate into more revenue.

Right now, 70% of all new cars produced in this country come standard with a Sirius satellite radio. That number is increasing all the time, as the major automakers continue to add Sirius radios to more and more models. For instance, Sirius XM will now be installed on the majority of Toyota's multimedia systems:

"Sirius XM is an easy to use technology that delivers an incredible breadth of content from coast to coast at the touch of a button," said Jon Bucci, Vice President, Connected Vehicle Technologies, Toyota Motor Sales, U.S.A., Inc. "We have included satellite radio in Toyota vehicles since 2004, and the growing variety of programming will appeal to an even wider spectrum of our customers, enhancing the experience of driving a Toyota vehicle."

The fact that new car sales are up for January means that the U.S. economy in general is growing. More and more consumers are now willing to spend their money on a new car. Economists polled recently are more "upbeat" and optimistic about 2013. The results of that poll were just announced on Monday:

A quarterly survey by the National Association for Business Economics released Monday shows half of the economists polled now expect real gross domestic product - the value of all goods and services produced in the United States - to grow between 2 and 4 percent in 2013. That's up from 36 percent of respondents who felt the same way three months earlier.

Total Sirius subscriptions for 2012 were almost 24 million, in spite of a very weak economy. This included net adds of two million. The new 2013 guidance anticipates net adds to equal 1.4 million. This is not due to fears of lower growth as some analysts have alluded to, but rather a new way of accounting for the net additions of a large OEM, that most speculate is General Motors (NYSE:GM). This change will take place in Q4 2013, so the net additions up to that point will remain unchanged.

Considering (1) net sub additions through Q3 2012 were 1.5 million, (2) the jump in January 2013 new car sales, and (3) the Toyota announcement, I predict that the net sub additions will be significantly higher than the guidance. And as I wrote in an article earlier this month, the new "GM Contract" will be a "win-win". Analysts are anticipating that Sirius will discuss all of this in detail next Tuesday on the conference call. They expect earnings for Q4 2012 to be between 2-3 cents a share, compared to a penny last year:

Earnings Est Current Qtr.
Dec 12
Next Qtr.
Mar 13
Current Year
Dec 12
Next Year
Dec 13
Avg. Estimate 0.02 0.03 0.53 0.11
No. of Analysts 13.00 10.00 10.00 12.00
Low Estimate 0.02 0.02 0.53 0.08
High Estimate 0.03 0.03 0.54 0.13
Year Ago EPS 0.01 0.02 0.07 0.53
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The revenue estimates for 2013 range from a low of $3.76 billion to a high of $3.88 billion. This is important because the newly issued guidance is only $3.7 billion. If the new car sales for 2013 continue to beat last year, Sirius revenue will be even higher:

Revenue Est Current Qtr.
Dec 12
Next Qtr.
Mar 13
Current Year
Dec 12
Next Year
Dec 13
Avg. Estimate 899.38M 912.46M 3.41B 3.83B
No. of Analysts 13 9 15 15
Low Estimate 890.79M 901.00M 3.40B 3.76B
High Estimate 915.47M 921.84M 3.43B 3.88B
Year Ago Sales 783.74M 804.72M 3.01B 3.41B
Sales Growth (year/est) 14.80% 13.40% 13.20% 12.10%
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Earlier this month, the price target was raised to $4 from $3.50 at Lazard, in spite of the fact that "Sirius issued a 2013 revenue outlook that fell short of the analysts' expectations" shown on the chart above. If the new car sales continue at the current pace, there will probably be more analysts that raise their price targets on the radio giant.

Although the share price seems to dip at the end of the month, I think that buying pressure from the short interest and a planned $2 billion buyback will contribute to the usual "run-up" to earnings this week. Short interest is the highest that I have ever seen it, at 379 million shares. NASDAQ predicts it would take 4.6 days to cover:

Settlement Date Short Interest Avg Daily Share Volume Days To Cover
1/15/2013 379,000,361 80,896,167 4.685022
12/31/2012 355,434,274 54,445,673 6.528237
12/14/2012 370,368,894 76,216,420 4.859437
11/30/2012 339,089,166 66,204,795 5.121822
11/15/2012 296,274,375 77,234,323 3.836045
10/31/2012 297,872,278 89,227,709 3.338338
10/15/2012 274,885,838 78,466,299 3.503234
9/28/2012 288,562,482 71,537,122 4.033745
9/14/2012 298,931,286 51,620,375 5.790955
8/31/2012 283,157,528 49,200,676 5.755155
8/15/2012 259,752,029 105,444,881 2.463392
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However, things change. The current volume has not been close to the 80 million shares a day volume earlier in the month. It is closer to half of that, which means it would take almost ten days for the shorts to cover. I think a lot of this lower volume is due to Sirius investors becoming more sophisticated, and holding onto their stock:

Date Open High Low Close Volume Adj Close*
Jan 28 3.15 3.16 3.12 3.15 30,553,400 3.15
Jan 25 3.11 3.15 3.09 3.15 33,795,000 3.15
Jan 24 3.12 3.12 3.08 3.09 65,253,400 3.09
Jan 23 3.14 3.15 3.11 3.12 37,916,100 3.12
Jan 22 3.17 3.17 3.13 3.15 45,634,900 3.15
Jan 18 3.19 3.19 3.15 3.16 39,746,200 3.16
Jan 17 3.14 3.16 3.13 3.15 38,342,400 3.15
Jan 16 3.14 3.16 3.12 3.12 28,336,100 3.12
Jan 15 3.15 3.16 3.14 3.14 39,529,700 3.14
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Chart forSIRIUS XM Radio Inc.

Technically, Sirius shares have been trading in a very tight range for the last two weeks, which may mean it is getting ready to breakout higher. The catalyst for this could be the jump in new car sales. Obviously the entire stock market is based on speculation, and anything can and does happen. But history usually repeats itself, and based on that I would advise the shorts to cover.

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.