The latest short data is in and it appears that for Sirius XM (SIRI), nearly 2 million shorts have been added since the last settlement date on April 15th. Numbers don't lie, and the fact of the matter is that shorts saw little reason to cover before Sirius XM's Q1 call.
As I said in my last article on Sirius XM's short data:
Given that Sirius XM's Q1 conference call is coming on April 30th, perhaps some shorts, 35.5 million, are wising up? If you follow my line of thinking, Sirius XM has already begun its buyback plan, and an announcement within the call stating that holders of Sirius XM now own more of the company by percent than they did before may send shares up in price.
Obviously some have disagreed with my line of thinking, but the fact of the matter is that :
- Sirius XM announced that it was well into its buyback plan in the Q1 call.
- The Street reacted favorably to this news.
It's simple math, really, and if you've followed my reasoning as to why, buybacks today should yield greater returns down the road. Borrowing at low interest rates now on future cash flow expectations and using that money to shrink the share count at the same time the stock is expected to appreciate is a very good way to increase shareholder value.
And increasing shareholder value should result in higher share prices. What did the stock do on the news that Sirius XM had repurchased over 200 million shares of its stock in Q1?
It popped, of course. Arguably, the Q1 numbers were simply "ok," but the news that so many shares had already been repurchased was received favorably by the Street. On top of this, news that Jim Meyer was named the permanent CEO likely assisted in the rise, as the question of who will be the permanent CEO was no longer hanging over the company's head.
So what's my expectation? I'd wager that at least in part, the rise from the $3 level before the Q1 call to recent highs of $3.42 has been due in part to some covering by shorts. Likewise, I would expect shorts to not be so bold going forward. With Sirius XM's buyback plan in place, the risk of another quarterly call containing news of another large block of shares that are effectively retired is quite high.
It's not a time to be short Sirius XM. It's time to be long. The company is returning billions to shareholders, and because of this, I expect shareholders to receive billions in benefits through the duration of the program.
Additional disclosure: I am long SIRI January 2014 $2 and $2.50 calls.