A couple of days ago I wrote an article, Sirius Hits a Home run - Maybe a Grand Slam. One of the comments to that article was written by fellow Seeking Alpha writer Cameron Kaine:
By the press release yesterday it seems that the company is going to do a little bit more this year to also manage the movement of stock price and not just focus on its operations. Not that operational focus is a bad thing, but there are certain things that can be done or said (at any time) by management to spur excitement in the stock - or at the very least, stop some bleedings.
This has been a common criticism of Sirius XM (SIRI). The company is doing very well, but the stock gets stalled. A lot of investors have blamed this on the fact that it is a volatile stock which attracts day traders. But now suddenly things seem to be changing. The press release discussed in that article and mentioned in the comment ignited a fire under the stock and sent it up past $2 a share.
What was the big news in that press release? The main thing was that the total subs for 2011 were 20% higher than the year before. And Sirius XM subs are up 100,000 over the guidance for the fourth quarter. Many analysts did not even think the company would make guidance, let alone surpass it. This is exceptional news, but the biggest news is that the results were released so quickly. Only three days after the year ended. This was a welcome surprise to everyone. Why have things suddenly changed? I have a theory.
According to a New York Times article on December 29, 2011 Sirius XM will handsomely reward their CEO:
.....in the dark days of June 2009, Mel Karmazin, chief executive of Sirius XM Radio, was granted options to buy the company stock at 43 cents a share. At today’s price of about $1.80 a share, the value of those options has risen to $165 million from the $35 million reported by the company as a compensation expense on its financial books when they were issued.
And the stock has gone even higher now. On Friday it went as high as $2.06 a share. Coincidentally, Mel's contract will expire at the end of 2012. If the stock were to go to $3.60 a share, almost doubling, his options would be worth $330 million instead of $165 million. So suddenly Mel has an incentive to make sure that the stock is more reflective of the good things the company has to offer.
Another coincidence is that the press release was sent out at the same time the stock was going into a golden cross. Although the simple moving average (SMA) is usually used to find the crossover, the exponential moving average (EMA) will detect it quicker since it is weighted to show more current trends. On Thursday January 4 the 50 day EMA was $1.78 and officially crossed over the 200day EMA which was $1.77.
As Brandon Wendell explains, this is an extremely bullish signal for a stock. Sirius XM shot up 11% to close at $2.04 after the crossover:
The “golden cross,” or action of the 50-period moving average crossing over its 200-period counterpart, is a valuable odds enhancer for identifying and executing high-probability trades in all markets.
Many traders often ask me what the "golden cross" is. The actual definition of a golden cross is when a shorter moving average finally crosses a longer one, thus confirming a trend is intact. The definition that most traders are concerned with is the one where institutions and funds may start to take action, and therefore, start to drive a stock further into the trend with volume.
Was this a sheer coincidence? That the press release was sent out hours before the crossover? Maybe. Whether on purpose or not, it was certainly perfect timing. But if Mel has changed his tune and decided to promote the stock along with the company, there will be thousands of Sirius shareholders that will be ecstatic. Who could blame him? The job of the CEO is to promote the stock after all.
So far analysts have not released new target prices based on this new information. But at Yahoo finance 12 analysts put the price between $2 and $2.70 per share. With 4 - strong buys, 6 - buys, and 2 - holds. Considering these are old numbers, I predict that we will see $3 a share very soon.