Auto sales generate satellite radio subscriptions. Strong auto sales generate even more satellite radio subscriptions. Sirius XM (SIRI) should benefit nicely from not only strong auto sales in June, but for the entire second quarter as well. June delivered auto sales of just under 1.4 million, while the second quarter was kind enough to the auto sector to see sales at 4.12 million.
It would appear that the auto sector is in full blown recovery, and that doubters are vanishing like yesterday's newspaper. For the first six months of 2013 auto sales stand at an impressive 7.8 million, well on pace for the 15.5 million that many analysts are now forecasting.
June and the first half of 2013 highlights include:
- An 8.5% increase over sales from 2012
- A SAAR of 15.9 million (the highest in 5 years)
- Sales for the first half of 2013 are tracking 7.5% better than 2012
- We have now had 25 consecutive months of year over year growth
- 8 auto companies have reported record June Sales
- Truck sales are the big gainer (a sign of an improving economy)
- GM, a strong satellite radio partner, actually saw a month over month increase
For Sirius XM, strong auto sales bode well for the stock. Because June sales were strong, the company is actually setting up for what could be a nice little run heading into earnings. We have strong auto sales, a share buyback in progress, a recovering economy, and improved product offerings. Sirius XM is demonstrating stability and the fortitude to defend the stock price. This is a combination that can be quite bullish.
One key difference that separates Sirius XM from the rest of the market is that the company is a free cash flow machine. While there were a few nervous moments in recent weeks, the Sirius XM story is not being held down. What I like about the recent trend on this equity is that it has not been driven by press releases of big news. In fact, auto sales have almost flown under the radar lately. That is about to change. The SAAR is now flirting with 16 million, and 2012 sales of at least 15.5 million now seem a foregone conclusion. Keep your eyes open for positive news, and be ready for this equity to make a run.
Of course, there is always another side to the coin. By example, if the macro-economic landscape turns, and auto sales suffer, it could dampen the upward pressure we are currently seeing. In my opinion the key to look for is auto sales at 1.1 million per month or better. Another factor to watch for is the emergence of the connected car. Connected cars offer content from various sources such as Pandora (P), Aha, Slacker, etc. It will take time for the connected car to become a major factor, but watching early traction is important. Stay Tuned