On Saturday, I reported that new car sales for June are expected to be up almost 8% over June last year, which will help stocks like Sirius XM (SIRI) that are "new car sales dependent." Yet on Monday during pre-market trading, shares of Sirius dipped down to $3.06 from Friday's close of $3.15. However, in spite of a down market that is still reeling from the Fed remarks last Wednesday, Sirius suddenly did a U-turn and began heading straight up due to remarks made by Bank of America media analyst Jessica Reif Cohen. Shares closed at $3.22 after jumping as high as $3.25. As I have mentioned before, when Cohen speaks, the market listens. She has been with Bank of America Merrill Lynch since 1994, and has exceptional knowledge and numerous contacts in this business:
Cohen has had a front-row seat for a period of dramatic change among the companies she covers, broadly defined as the media universe. Originally focused primarily on broadcasters, over the years her coverage has expanded to include cable and satellite companies, digital media and related industries - not to mention all of the merger-and-acquisition activities of such big names as Comcast Corp., News Corp., Time Warner and Viacom. "She has great industry knowledge and wonderful contacts," one backer told Institutional Investor in 2000.
Cohen's published remarks on Monday via Dwight Einhorn at Benzinga (see link above) reiterate a Buy rating on Sirius, with a $4 price target. The report states that Bank of America does not consider IP radio competitors such as Pandora (P) and Apple (AAPL) "true threats" to the satellite radio company. Rapid growth, low churn, a "unique cost structure," improving financials and auto sales, both new and used, all contribute to Siri's "reasonable valuation":
SIRI has surpassed virtually all fundamental projections we have made since reinstating coverage in Oct. 2012, and appears to be gaining momentum (FCF guidance was recently raised, from $900mn in CY '13E to 915mn).
The Bofa $4 price is in line with 15 other analysts reporting to Yahoo Finance:
Price Target Summary
|No. of Brokers:||15|
Data provided by Thomson/First Call
The second quarter will end on June 30, and the results are expected to be up over last year. Revenue may be up over $100 million. However, last year's earnings are skewed by NOLs that were recognized in 2012. Sirius bears, and various share manipulators may try to use those numbers to confuse investors:
|Earnings Est||Current Qtr.|
|No. of Analysts||13.00||13.00||13.00||13.00|
|Year Ago EPS||0.48||0.01||0.51||0.09|
|Revenue Est||Current Qtr.|
|No. of Analysts||12||12||15||14|
|Year Ago Sales||837.54M||867.36M||3.40B||3.79B|
|Sales Growth (year/est)||11.70%||11.10%||11.40%||9.50%|
Shares had been trading as high as $3.63 on May 28, before slowly declining over the last three weeks to the pre-market low of $3.06 on Monday. The Fed announcement on the 17th appears to have had very little affect on Sirius as the shares jumped to $3.48 on the 19th. Some of the June decline may be due to the "Sell in May" game that some traders and investors alike play over the summer:
Sirius XM Prices
Sirius has consistently beat the rest of the market over the last few years, and remains a "go-to" stock when investors are worried about "gloom and doom." And recently the $2 billion buyback has offered even more of a safety net to fearful investors:
Even though the economy is getting better, the market is in the "off season." Many investors are either on vacation, or wishing that they were. For the bargain hunter, this time of year can be a great time to buy good companies like Sirius. But it can also be very volatile, and change course and direction very quickly. For instance, any leaks or actual press releases about the quarterly results, and/or sub results could be released as soon as next week. If the news is good, the shares could take off the way they did Monday when Cohen released the Bofa report on Sirius. So stay focused and watch for buying dips throughout the summer.