A few readers have asked my opinion on whether or not Sirius XM (SIRI) will break that all important $3.25 level of resistance before the Q1 call on April 30th. Given that share prices in the company have, in the past, run up into earnings calls, it is understandable that some may be expecting another short run over the next two trading days.
But while some may be expecting this run, I'm not. I'm actually hoping that the stock does not run up into earnings and instead continues to trade flat sideways right up until numbers are released. Why?
Because run-ups on rumor and speculation tend to end in selling on news. The old saying "buy the rumor, sell the news" can often rear its ugly head, trapping those who would buy on an excited run-up only to find out they bought high, and are faced with losses at market open the next day. That might work to the favor of savvy traders and shorts, but it's unlikely to pay off for the long that "invests" in the company and is subsequently scared out of his or her shares in the ensuing confusion and potential panic selling.
The fact of the matter is that since the beginning of 2013, Sirius XM has dragged sideways in a rough 10% range, bouncing between $2.95 and $3.25. All news is currently known, and for the stock to make a significant run-up now would be a run-up on nothing. That's not what an investor hopes for. Investors should want price appreciation on news of substance.
Assuming Sirius XM continues to trade sideways, what should investors be looking for in the Q1 call only a few trading days away?
Number one, news of share buybacks. It's the elephant in the room as I keep saying. My expectations are that shares have been bought back already, and in considerable quantities at current pricing. I believe an average cost in this area will appear favorable, and that the Street will reward any significant share repurchases which have happened in the current range.
That being said, if no buybacks have been done, it's really a mixed bag of whether or not the Street will be positive on that news. While it certainly is not my expectation that shares have not been bought back, it raises the question of "who has been buying?" Money flow has been highly positive into the stock since the beginning of the year, and if there has been a big buyer to support this coupled with Sirius XM still retaining the full $2 billion potential purchasing power, the Street may not be too upset.
I do not see buyback news other than a cancellation of the plan that would be considered less than neutral, so I have little concern in this area. I just hope the Street shares my sentiments.
Number two, news of new subscribers. With auto sales cruising along at elevated rates to same month sales in 2012, and with Sirius XM's trials coming in bulk from new auto sales, there is not much concern in my mind that Sirius XM will not beat its current guidance at least by a little bit. A guidance raise, again, should be considered favorable. I see very little chance that Sirius XM will announce a miss on subscribers or a decrease in guidance, so again, I don't hold a lot of concern in this area.
Number three, news of a permanent CEO. Will it be Meyer, who is currently serving as CEO in a temporary position? Will it be someone else? I think, as far as the Street goes, seeing a permanent CEO in place would be viewed as favorable. Obviously, with Liberty Media (LMCA) at a controlling stake, anyone placed in the CEO position would be carefully picked and would be "pro-Liberty." While analysts may have differing opinions on who is chosen, I believe a CEO being chosen will be a good thing if it is announced. Lack of a permanent CEO breeds uncertainty, and can contribute to the share price of Sirius XM continuously dragging sideways.
All three points are question marks hanging over the heads of the company, and the stock. Question marks are not necessarily negative, but it's very hard for them to be positive. Look for answers to all three points in the call.
The more questions that are answered, and the better the fashion in which they are, the more likely the stock is to appreciate beyond that level of $3.25.
Additional disclosure: I am long SIRI January 2014 $2 and $2.50 calls.