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On Thursday, July 25 many investors and analysts will be listening very closely as Sirius XM (SIRI) announces Q2 earnings on the live Conference Call. There are a lot of variables that can send the stock up or down dramatically, depending what information comes out during that call. For instance, on July 9 when the company announced a 15% increase in net subscription additions for Q2, the share price jumped from lows in the $3.30 range to a high of $3.60. And then with the help of some unsuspecting "short" investors, the price climbed to a new 52 week high of $3.77. Now where is it headed?

Sirius XM Prices

DateOpenHighLowCloseVolumeAdj Close*
Jul 17, 20133.673.683.623.6350,961,8003.63
Jul 16, 20133.663.693.603.6754,695,4003.67
Jul 15, 20133.753.773.663.6654,913,8003.66
Jul 12, 20133.653.733.643.7245,894,0003.72
Jul 11, 20133.623.653.603.6449,566,5003.64
Jul 10, 20133.613.623.543.5946,082,9003.59
Jul 9, 20133.533.603.513.6081,410,9003.60
Jul 8, 20133.403.493.393.4849,941,8003.48
Jul 5, 20133.483.503.363.3859,683,7003.38
Jul 3, 20133.433.473.383.4735,137,3003.47
Jul 2, 20133.383.453.363.4451,163,0003.44
Jul 1, 20133.353.403.303.3837,936,9003.38
* Close price adjusted for dividends and splits.

As most people know, subscriptions are the main source of revenue at Sirius, so there should be a positive surprise when the earnings for the second quarter are announced. Before the sub announcement revenue was projected to be close to $935 million. If it jumps 15% like the subs just did, Q2 revenue would surpass the highest estimate of $952 million, landing at $963 million:

Earnings EstCurrent Qtr.
Jun 13
Next Qtr.
Sep 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate0.020.020.090.12
No. of Analysts13.0013.0013.0013.00
Low Estimate0.020.020.070.08
High Estimate0.030.030.130.17
Year Ago EPS0.480.010.510.09
 
Revenue EstCurrent Qtr.
Jun 13
Next Qtr.
Sep 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate934.82M963.68M3.79B4.15B
No. of Analysts12121514
Low Estimate915.90M938.29M3.71B3.96B
High Estimate952.00M986.00M3.86B4.29B
Year Ago Sales837.54M867.36M3.40B3.79B
Sales Growth (year/est)11.60%11.10%11.30%9.50%

The earnings estimates (charts above) have been updated in the charts below, but they do not take into account any additional revenue from the jump in subs.

Earnings EstCurrent Qtr.
Jun 13
Next Qtr.
Sep 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate0.020.020.090.12
No. of Analysts12.0012.0013.0012.00
Low Estimate0.020.020.070.08
High Estimate0.030.030.130.17
Year Ago EPS0.480.010.510.09
 
 
Revenue EstCurrent Qtr.
Jun 13
Next Qtr.
Sep 13
Current Year
Dec 13
Next Year
Dec 14
Avg. Estimate934.40M963.60M3.79B4.14B
No. of Analysts12121514
Low Estimate915.90M938.29M3.71B3.96B
High Estimate952.00M986.00M3.86B4.29B
Year Ago Sales837.54M867.36M3.40B3.79B
Sales Growth (year/est)11.60%11.10%11.30%9.40%

But the new price targets have jumped dramatically this week, as analysts digested the new sub numbers; raising the high target from $4.20 to $4.45:

Current Sirius Price Target Summary for Sirius XM:

Mean Target:3.77
Median Target:3.70
High Target:4.45
Low Target:3.00
No. of Brokers:15

Data provided by Thomson/First Call

Former Sirius Price Target Summary on July 9:

Mean Target:3.66
Median Target:3.70
High Target:4.20
Low Target:3.00
No. of Brokers:15

There are several things to watch for during the upcoming earnings call. One of the biggest variables is the current status of the company buyback program. What is the new share count? And how aggressive will the board be in approving new additional buybacks. Has Liberty Media (LMCA), the majority owner of Sirius, sold any of its shares into the buyback? As I mentioned in a recent article, this can give investors possible clues as to where the price might be headed:

Why should Sirius investors care about who sells shares into a buyback that will just be retired anyway? The answer is share price. If Liberty Media Chairman John Malone sells Sirius shares it will send a signal to investors that "the price is right" to sell. If he holds, the price is too low to sell. And if he buys, the price should go much higher in the future. And he might do any of the above with the intention of sending a mixed signal which could pay off for him later.

Just like with any other company, buying or selling of company shares should be studied carefully. Especially when that activity involves a company insider like Malone. Because "Big Money" might follow his lead.

Another variable will be how well the company can explain the "drop" in income for the quarter. Looking back at the charts above, the EPS for Q2 2012 was 48 cents. This year analysts are looking for only two to three cents a share. This was caused by the recognition of $3 billion in net operating loss or NOL last year:

We also reversed our deferred tax allowance in the quarter resulting in a tax benefit to earnings of approximately $3 billion. Another $112 million of tax benefit will be recognized in the second half of the year. The reversal of the deferred tax allowance was triggered by achieving three years of cumulative pre-tax income in management's expectation of sufficient and sustainable future taxable income to utilize our NOL.

When the earning were announced last year, the release said "Earnings of $3.1 billion, with a $3.0 billion tax benefit". Even though this does represent a real tax savings, it can confuse the average investor when it is put on "paper". And as I have mentioned in the past, a confused or even sinister reporter/analyst can (unintentionally or not) take advantage of that confusion and even promote it with headlines such as "Sirius XM Earnings Drop 46 Cents Per Share". It will be up to Sirius to report the earnings in such a way that this type of activity is kept to a minimum. If not the share price could fall temporarily, which might offer a great buying opportunity for Sirius Bulls.

On Wednesday Sirius released the details of a deal with ATT (T) which will provide Telematics for Nissan:

ATT announced an agreement with Sirius XM Radio to provide mobile connectivity to support a suite of security and additional services for Nissan automobiles in North America. SiriusXM's in-vehicle telematics solution will provide Nissan vehicle owners 24/7 emergency support for accidents, stolen vehicle tracking and roadside assistance, along with a host of additional services to be announced at a later date.

"Your future car is going to be a smartphone with four wheels with powerful capabilities specifically built for a safe and enhanced customer experience," said Glenn Lurie, president of AT&T Emerging Enterprises and Partnerships Organization.SiriusXM will use the combination of satellite and cellular networks to expand features for customers. This combination of networks will allow SiriusXM to take advantage of both one-to-many and one-to-one network connectivity.

Look for more information about this to be discussed on the call next week, along with analyst's questions about what the company's plans are for more telematic partnerships with other automobile companies.

Conclusion:

Sirius XM is a great company with a lot of potential. But sometimes the share price does not reflect that potential. Right now, I think the price is right where it should be if the buybacks have been completed. The biggest variables then are: Liberty's buyback actions or plans, if there is an earnings surprise from the additional subs, and any more details concerning upcoming partnerships, products and services in the future. Use your good judgment as to whether to buy, sell or hold during the call. Fortunes have been made and lost gambling on a company's earnings results. I plan to buy more Sirius shares if there is a significant dip.

Source: Sirius XM Radio Inc (SIRI) Shareholders: Prepare For The Conference Call