$4.25 per share. That's Goldman Sachs' new price target on Sirius XM (NASDAQ:SIRI), raised up from their previous $3.50 per share. Sound familiar to anyone?
It certainly does to me. I've been offering $4.25 per share as my 12 month target price for a long time now. Head back to January where I wrote that Sirius XM would be one of 2013's best investments. There I said:
With yesterday's close of $3.14 this represents an end of the year target between $4 and $4.50 per share. Why a range? Because I feel that as of now, this represents reasonable expectations for both the low and the high end of the share price as the year concludes. If I were asked for one price, I would say $4.25, but obviously share prices can and will trade (hopefully) above or (not hopefully) below one's expectations.
Fast forward to February, when respected analyst John Tinker of Maxim Group raised his price target from $3.80 to $4.25:
So, you're probably curious why I said bear traps are on sale for $4.20? Well, a well respected analyst for Maxim Group, John Tinker raised his price target for Sirius XM Tuesday after analyzing the conference call. His target was increased from $3.80 to $4.20 citing increased growth in free cash flow per share going forward.
In May I illustrated my strategy for my $4.25 end of year expectation (refer to the article for graphs):
It should be very apparent by the resulting graph that Jan 2014 $3.50 calls (denoted by the yellow line) are your best bet out of those four strikes IF you expect share price of $4.25 near expiration. As you can see the $4's, denoted by the green line, do not exceed the gains of the $3.50's until the share price approaches $4.60.
Because I do not feel the fundamental story of Sirius XM warrants a $4.60 January 2014 share price, the higher priced calls do not make sense for me.
And as of Tuesday, Sirius XM released news that 715,000 new net subscribers had been added in the second quarter. Absolutely outstanding if you ask me, and the kick in the pants the share price needed to get moving again onwards and upwards towards my $4.25 target.
NEW YORK, July 9, 2013 /PRNewswire/ -- Sirius XM Radio today announced that it added 715,000 net new subscribers in the second quarter, bringing its total subscribers to more than 25 million. Strong automotive sales helped drive 15% growth in net additions over the second quarter of 2012 and set a post-merger record for quarterly net subscriber additions. The Company also announced that it was raising full-year guidance for total net subscriber additions to 1.5 million from its previous guidance of 1.4 million.
It always seems as though there is a late bus or two getting to an event. That's just fine by me, though, as they've come with a $4.25 price target of their own and are ready to celebrate with the rest of us.
Goldman Sachs Group Inc. updated their model ahead of quarterly results, following Sirius XM Radio Inc.'s release of stronger than expected 2Q13 net adds. They forecast 2Q revenue/adjusted EBITDA of $938mn/$278mn (+11.7%/+17.1% yoy), both slightly above consensus of $935/$273mn. Goldman Sachs raise their 12-month price target to $4.25 (from $3.50), as they roll forward to 2014YE.
Don't think the rest of us at the party don't notice that their target is a bit too far out there, though. Being a 12 month target they are expecting $4.25 by July of 2014, but at least they acknowledge $4.25 is in sight. Perhaps once Sirius XM releases Q2's actual numbers in their quarterly call, likely around the beginning of August, Goldman will be forced to accept that $4.25 will be coming closer to January 2014 than in July. It's hard to be so conservative with Sirius XM adding record numbers of net subscribers, buying back billions of dollars worth of stock, and just in general laying waste to the naysayers and those who would throw million dollar option bets against the share price.
The $4.25 party is still going, and getting bigger all the time. Plenty of room for everyone, just don't wait too long to go long!
Additional disclosure: I am long SIRI January 2014 $2, $2.50, $3 and $3.50 calls. I am short SIRI January 2014 $4 calls tied to the longs resulting in multiple tiers of bull call spreads.