Sirius XM: $3.75 In The Near Future?

May.20.13 | About: Sirius XM (SIRI)

As I continue to be bullish on the prospects for Sirius XM's (NASDAQ:SIRI) share price in the near term, I'm going to go out on a limb and suggest that investors may see share prices approaching $3.75 in the near future.

How 'near' is this future? Try Monday. Or at the latest, sometime in the coming week.

Yes, that's a 26 cent jump over Friday's closing price of $3.49, and it would create a total rise of around 26% from recent pre Q1 release lows of $2.97. But I think the share price has enough momentum to approach that $3.75 mark in fairly short order.

Let's consider an important issue at stake here.

Sirius XM has pledged a $2 billion buyback plan of which it had used up less than half to repurchase 209 million shares in the first quarter. This reduction in shares has effectively given each share a greater percentage of ownership in the company. Yes, it's technically a zero sum game as each share now has less cash or more debt behind it currently, but these share repurchases can be seen as an investment in the company, by the company. If you expect the share price of Sirius XM to appreciate, then this zero sum game today becomes tomorrow's profit.

Consider the benefits as shown by my graphs in this article here. I stress that I consider those graphs to be based upon conservative assumptions of company appreciation of 15%. Obviously, the news of these repurchases was viewed as favorable, and immediately following the release of Q1 numbers Sirius XM ran up from $3 per share in pre-market trading to $3.59 just last week.

As I have been stressing to investors, hanging on for at least $3.50 was the right play, and those that needed to sell short term might find exit points in that area. I had suggested a sell near $3.60 for those who had to sell soon, and I believe that target was reasonably hit at $3.59.

Moving Forward

A combination of fundamental long term analysis and short term technical analysis can give one the edge in both investing and trading. So let's take a look at what I expect fundamentally short term from Sirius XM, and take a peek at the stock from a technical standpoint.

With Sirius XM's shareholder meeting on Tuesday, I believe the story will be in a couple of key areas. First and foremost, Sirius XM has a new permanent CEO. James Meyer transitioned from temporary CEO to permanent CEO in an announcement in the Q1 call, and it will be interesting to hear his vision of Sirius XM's future.

With regards to this quote from that call:

We hold the strong belief that having satellite connectivity and IP connectivity in vehicles will prove to be a durable advantage versus IP only connectivity as we move into a connected car world. We are already working closely with several OEMs on the development of in-car apps that will provide the initial integration of SIRIUS XM streaming services. So stay tuned for announcements in this area as well.

I should briefly note that much has been said about the potential threat to our business from in-car streaming. But owners - no one has recognized that broader and improved streaming also gives us a much better opportunity to better serve our customers in their homes, offices and on the go.

The future of Sirius XM will not be 'just radio.'

Expect him to talk about telematics, and what I expect to be Sirius XM's 'next step' towards the future dashboard. Look for forward looking vision vs. focus on simply growing subscribers from the new and used car channels. As an investor I hope to see Sirius XM utilizing its strong presence in the car and relationships with auto makers to begin offering a suite of services for one low monthly fee. Think cable television, phone, and internet in your home from one provider. Now think of packaged radio, telematics, and 'infotainment' solutions in the dashboard from one provider. I'd like to see Sirius XM razor in focus on the North American market's dashboard, and be that one provider who can offer it all either through services Sirius XM provides exclusively or through partnerships with other companies. Think Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) here.

Second, expect a simple announcement that buybacks are ongoing. I really don't expect to hear an updated number of shares repurchased to date, and I expect those numbers to be released only during the quarterly earnings calls. That doesn't mean investors will continue to adopt a wait and see approach here. The cat is out of the bag, buybacks have started, and there should be strong support to counter downside swings in share price for the duration of the buyback.

As of Friday, our total share repurchase to-date have reached approximately 209 million shares, including the special dividend of $327 million we paid last year - late last year, we're proud to note that we have returned nearly 1 billion in capital to our shareholders since the end of last year. We have over 1.3 billion of remaining capacity under our share buyback authorization.

Will we see an update to subscriber guidance? Perhaps, but I would not be surprised to see Sirius XM retain that 1.4 million net addition guidance at least until another quarter's worth of data is under its belt.

The Technical

From a technical standpoint, Sirius XM remains strong. Yes, the equity sold off on Thursday after a run to $3.59 but one must consider that options expiration happened over the weekend, and with $3.50 being a key strike point for call options, the price was bound to fall and hover within a few pennies of $3.50 at Friday's close. Take a look at the following two charts.

Click to enlarge

The daily chart above shows strong support from the simple 5 day moving average, or the light blue line. Even with the sharp drop from Thursday, prices returned higher than this 5 day moving average. Any drop below has been met with strong buying and I expect that to continue. The catalyst for that $3.75 jump could be found in speculation on Monday leading into the shareholder meeting, or following the shareholder meeting if there is positive reception.

Click to enlarge

The 60 minute chart above shows the red line, or 50 period simple moving average providing strong support in this uptrend. It's worth keeping an eye on to ensure the current trend remains intact, and those seeking purchase points should look to this level in the shorter term.

As with any equity, I'd expect a period of consolidation or, if you prefer, correction if Sirius XM were to approach $3.75. Long term holders? You know why you purchased to begin with, and short term volatility or consolidation should not keep your from holding your stock. $4.25 is certainly within sight by the end of the year.

Those who must sell in the short term can look a little higher than the current $3.49 pricing, and may be able to squeeze out a few more cents to the upside. Playing it safe? Look to $3.58 as an exit point, just below recent highs. Willing to let it ride? You may choose to hold on for a bit more near $3.75.

Remain Vigilant

As always, cement that fundamental story in your head, and feel free to use a little technical skill in the short term to try to get the best price either on the buy or the sell side. And of course, keep an eye on that overall market. With the market breaking new highs, some caution is warranted.

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.

Additional disclosure: I am long SIRI January $2 and $2.50 calls. I will be selling part of my SIRI position to enter short term plays for a couple days between now and the first two weeks of June.