Sirius XM (NASDAQ:SIRI) stock dipped yesterday and closed at $2.115, down $0.035. This was based on a couple of things. First, the stock has traditionally run up and subsequently declined right before the earnings announcements in the past. Thus a lot of traders are selling hoping to jump back in at a lower price. Another factor was the announcement that Barclays initiated coverage of the stock and rated it Underweight:
Sirius XM shares are too pricey, Barclays analyst James Ratcliffe asserts in a research note this morning, launching coverage of the satellite radio company's shares with an Underweight rating and $2 target.
The article goes on to say that investors should buy Liberty Media (NASDAQ:LMCA), which closed at $83.95 yesterday:
For investors seeking exposure to SIRI operational performance, we prefer Liberty Media [the company's largest holder with a 40% stake] which allows investors to purchase SIRI shares for a more reasonable ~$1.61, even assuming a 20% discount on Liberty's other assets.
According to its website, Liberty Media also owns a percentage of a number of other companies.
Liberty Media Corporation owns interests in a broad range of media, communications and entertainment businesses. Those interests include subsidiaries Starz, LLC, Atlanta National League Baseball Club, Inc., and TruePosition, Inc., interest in Sirius XM, Live Nation and Barnes & Noble, and minority equity investments in Time Warner Inc. and Viacom.
So if you want to buy pieces of these other companies then you should investigate buying Liberty Media stock. However, if your focus is Sirius XM, you will be better off buying that stock. Basically what Ratcliffe is saying is like telling an investor that likes Apple (NASDAQ:AAPL) to buy Fidelity Magellan (FMGKX) because the fund owns a large amount of Apple shares. This ignores the fact that those shares are diluted with other companies the investor may or may not be interested in.
Also what investors need to take into consideration is that there are a lot of other analysts covering Sirius XM, and they have different opinions. According to Barrons.com, 13 analysts rank Sirius: 7 have Buy ratings, 3 have Overweight, and 3 have Holds. The Underweight title given to Sirius XM by Ratcliffe actually means Sell. This rating is not in line with any other professional analyst that I could find. Also, Barrons listed the following price targets: High - $3.20, Median - $2.40, Low -$2.00. I understand that this could be considered a contrarian move, but I am not sure that people who read Ratcliffe's note interpreted it that way.
All of these target prices are subject to change when the earnings are announced tomorrow morning. Everyone is desperate to hear what CEO Mel Karmazin will have to say on the conference call. You can feel the tension in each article that you read. As usual the shorts are scared that a really good earnings report will bring on another short-squeeze like we saw in January, sending the stock even higher. And the longs are worried that the earnings might be baked in to the current price of the stock, and this is the time to sell.
The earnings should definitely beat expectations. I have written a lot of articles on Sirius, and there are many reasons to expect really good results. One of the articles was Sirius XM Lynx Will Add Unexpected Revenue. At the time that I wrote the article there were a lot of reasons to think the Lynx and its sister 2.0 radio the Edge were going to be a big factor in Sirius XM earnings. Now we have a peek at the Lynx sales. In an article yesterday, Rick Souder, executive vice president of merchandising at Crutchfield said that Crutchfield.com cannot keep the Lynx in stock and Sirius is trying to "ramp up production to keep up with demand." The article also mentions that the device will be available at Best Buy (NYSE:BBY) stores later this month.
Many commenters on my articles have said the radio would not have an effect on Q4, however the article states that Crutchfield began taking pre-orders December 3, and got the first shipment December 29. Even if there is no effect on Q4 these sales will have a big impact on 2012 guidance. Hopefully we will get all the details from Mel on the conference call.
Another factor is a technical one. Yesterday the 50 day SMA crossed over the 200 day SMA to make a Golden Cross. On January 4 of this year the 50 day EMA crossed over the 200 day EMA which signaled an EMA Golden Cross and the emergence of a bull trend. Since the SMA lines have now crossed this solidifies that there is indeed a steady upward trend.
The longs are going to win this one. Even though the stock has dipped a few cent,s this does not equate with the traditional "big drop" Sirius XM usually makes right before earnings. The last several days have shown a large amount of share volume which means there are a lot of buyers out there ready to gobble up any shares that are sold. As a matter of fact, as I am writing this article, the stock is at $2.15 and has been as high as $2.16. Also the call volume has increased dramatically. According to an article in Forbes concerning Sirius XM stock:
Given their excessive preference for calls, options traders are clearly expecting another Street-beating report tomorrow morning. Looking at February options, those with expiration closest to the company's quarterly report, we find call open interest of 33,408 contracts, versus put open interest of only about 9,530 contracts. As the front-month put/call open interest ratio of 0.28 reveals, calls easily more than triple puts in the February series.
It looks like the shorts are finally wising up to the pain of a short-squeeze. However, according to Barrons, the short interest is up. On January 13 there were 305 million shares shorted. This was up 1.23 percent (8 percent of the float). Why? The technical crossover of the SMA has confirmed that there is a bullish trend. And we now have confirmation that Sirius has not been able to keep up with the demand of the Lynx, and thus the 2.0 radios will have a positive and unexpected effect on the Sirius XM bottom line. Also most of the professional analysts are recommending this is the time to buy Sirius XM.
Here are some of the things that I mentioned in an article written last month Why Shorting Sirius is Dangerous which will help push earnings up. We can now add to that list the fact that new car sales are up:
Good news at a time when the economy has been in trouble. The Howard Stern announcement, the new Apple App for Sirius XM internet on Apple gadgets, the new Lynx which is portable and can be used for satellite reception or WiFi internet radio, 2.0 and the addition of new channels including Latino, the used car deals, and the fact that subs for 2011 are up 20% over 2010 - all of this will push earnings way up.
Again, how high the price of the stock goes depends on what comes out of the earnings report. As I have said numerous times before, "my money is on Mel." I think if there were any negatives to report tomorrow, he would have made them known. What we do know is that the market thinks this earnings report will be a real hit.
Disclosure: I am long SIRI.