For Sirius, Debt Repayment Is the Way to Go

| About: Sirius XM (SIRI)

After dropping to a low of $1.68 immediately following what many perceived to be a mixed 4Q and fiscal 2010 report this week (see earnings results here and earnings call transcript here), shares of satellite radio company Sirius XM (NASDAQ:SIRI) rebounded over seven percent on Wednesday as investors had time to digest the earnings report while some analysts also reiterated their bullish outlook for the company.

While the post-report headlines specifically concentrated on the company's quarterly loss for the fourth quarter on Tuesday, the tune changed on Wednesday as the possibilities for Sirius XM's growing free cash flow took hold and fueled renewed speculation about the short and long term potential of the company.

Possible acquisitions, share buybacks and eventual dividends were discussed, but it's my opinion that the company should concentrate on, at least for the immediate future, doing what it's doing now - using the free cash flow to pay down the boatloads of debt, much of which will come due next year.

Taking that action will hurt the headlines after each quarterly report, as reporters key in on the 'loss' numbers, but reduced debt leads to a healthier company, which - in the end - increases shareholder value.

That said, the company has to prepare for the future so as not to end up relying on an outdated technology (companies that do that end up having to buy left-leaning, glorified media blogs), so if the right acquisition comes up, then Sirius XM should jump on it.

That goes the same for improving content. With the signing of Chris 'Mad Dog' Russo from WFAN New York, and the addition of multiple supporting characters from the world of sports, the company has managed to put together quite the impressive lineup for sports fans around the country.

For those on the road during football season - and even for those at home looking for their team's home radio broadcast - there's no beating the NFL coverage provided by Sirius XM.

Combine that with the improved content for the ladies, Howard Stern's contract renewal and the dynamic music content, and this is a company primed for success.

The global economic crisis hit this company in the wallet for nearly two years as consumers cut just about every penny of their luxury spending from their budgets, but the latest quarterly report shows that this company is back on track, and no one should be complaining that the free cash flow is going to pay down debt.

It makes for a healthier company, and Wednesday's rebound after Tuesday's decline makes it look like investors are seeing the light.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.