One of the more frequent questions asked recently about Sirius XM Radio (SIRI) is "With all the good news about this company, why hasn't the price moved higher?" Another common question is about whether or not Sirius XM or its majority shareholder, Liberty Media (LMCA), are somehow holding the price down by not disclosing information.
The suggestion has been that either, or both, are interested in having the $2 billion share buyback announced last year be as efficient as possible. In other words, if the share price can be held down, the $2 billion program will allow Sirius XM to buy more shares. I find this premise very difficult to accept.
It's not as though I have some idealized view of the ethics, integrity or honesty of boardroom occupants, it's more a matter of the possible gain vs. the possible losses in this situation. In addition, some of the Sirius XM executives have a history of cashing in their options soon after they vest and restrictions lapse. The idea that these same people would try to hold down the share price seems counter-intuitive.
New Car Sales
So, if the price of the stock isn't being manipulated, why doesn't good news drive the share price higher? Some of the good news out there is tied to new vehicle sales. Since most of Sirius XM's new subscribers are signed up after they experienced the service during a free trial following the purchase of a new car, these sales are important. In a previous article I noted that car sales in the first quarter were running at a seasonally adjusted annual rate of 15.2 million, the best in five years.
It certainly appears to be good news. But if new car sales had been expected to come in at 15 million, and that was the basis for the guidance, is the difference all that significant? More importantly, will it hold up the rest of the year? Or will the payroll tax increase finally have an impact after four months? What about the impact of sequestration? It's only about $40 billion in spending cuts in fiscal 2013, right? This week we saw its impact across the country.
Commercial airline flights started backing up and delayed some travelers Monday, a day after air traffic controllers started going on furlough because of government spending cuts.
And it's not just the 15,000 air traffic controllers. All 47,000 FAA employees are expected to be furloughed one day every two weeks - essentially a 5% pay cut. The FAA isn't the only department affected. Many government workers will be making less money and may not be rushing out to buy new cars. And workers making less money are probably somewhat less likely to continue Sirius XM subscriptions.
Sirius XM announced the release of its enhanced Internet offering at the beginning of last week:
... an innovative personalization feature that empowers SiriusXM Internet Radio listeners with the ability to easily personalize existing SiriusXM commercial-free music and comedy channels to create a more tailored listening experience.
The offering had minimal impact on the share price, probably because it had been pre-announced months ago and had been in beta testing. Was it a case of buy on the rumor and sell on the news?
According to Yahoo!Finance the analysts that follow Sirius XM are overwhelmingly positive. Eleven rate the stock buy or strong buy, four rate it a hold and one rates it underperform. This is both good and bad. It's certainly good that the analysts are positive, but, unfortunately, there are fewer analysts that can increase their rating and help drive the share price higher.
Does the "good news" about car sales, or share buybacks or MySXM even qualify as news? Yes, it's great that new car sales are at five year highs, but the consensus forecast has been 15-15.5 million units since late 2012. It's really not news. Neither is MySXM or the share buyback. These have been known for months.
The kind of news that will be needed to move the share price higher may come out next week when earnings are released. If the company raises guidance, the share price should move higher. If good news is released about the share buyback, the stock could also move higher. If the analysts are impressed with net self-pay subscriber additions and average revenue per user, and as a result, raise their price targets, the share prices should also move higher.
Each of the past two years, the company has raised guidance when first quarter results were released, so it would not be a surprise to see it occur next week. However, with the uncertainty around consumer spending, it would also not be a surprise to see the company take a more conservative wait and see approach. An approach that could result in the price of the shares stagnating a bit longer.
Additional disclosure: In addition to my long positions, I have January 2014 $3.50 covered calls written against many of my long positions in Sirius XM. I also trade blocks of Sirius XM on a regular basis. I have no position in Liberty Media at the current time.