By Demian Russian
In a research note issued yesterday, Lazard Capital Markets analyst Barton Crockett maintained his BUY rating and $1.35 price target on Sirius XM (NASDAQ: SIRI). In response to Sirius XM raising their full-year 2010 net subscriber addition guidance last Friday and more robust auto sales than had been previously assumed, Crockett also raised his full-year 2010 net subscriber addition estimate to 1.383 million, which equates to 20.156 million total subscribers for full-year 2010.
He is now modeling for 327,000 net subscriber additions in the third quarter and 302,000 in the fourth quarter. While he sees this slowdown coinciding with an increase in the amount of promotional trial periods coming to an end, he notes that “there may also be modest conservatism in the guidance.” He added:
We rate Sirius BUY with a $1.35 price target. We see free cash flow rising from $167 million in 2010 to nearly $1.4 billion by 2015, based on rising ARPU, modest sub growth and 70% revenue contribution margin over flattish fixed costs.
As a result of auto sales coming in better than expected, Crockett raised his full-year auto sales assumption to an 11.5 million average SAAR (Seasonally Adjusted Annualized Rate) for Q4 2010 and for full year 2011 from his previous 11.1 million assumption, noting that September’s SAAR came in at a better than expected 12.2 million, bringing Q3′s average SAAR to 11.5 million.
While maintaing his BUY rating and $1.35 price target, Crockett also noted that his current price target was supported by a DCF (Discounted Cash Flow) analysis and equated to 14.5X 2011 adjusted EBITDA, which includes a “$2.0B valuation allowance for more than $8B of NOLs” which Sirius XM possesses. “Sirius should not pay meaningful taxes for many years,” Crockett noted.
Sirius XM is up over 20% since Lazard last reiterated their BUY rating and $1.35 price target in early August.
Disclosure: Author is long SIRI