Sirius Ready To Pop Or Back To Its Old Tricks?

Mar. 1.12 | About: Sirius XM (SIRI)

Over the last few weeks, I have gotten my feet wet talking about Sirius XM (NASDAQ:SIRI) mainly and ways to profit from it. As a long myself, I spoke about personal experiences with the stock, and how over the years I profited from not only owning but making adjustments to it.

In the wake of all the hype of the potential Liberty (LMCA) takeover of Sirius coming in March, many of us expected there to be a run-up before the looming March 6th "magic" date, in which Liberty can take full advantage of the NOL's that are the crown jewel of anyone acquiring them. So far this has not happened, it seems Sirius is back in a rut, holding within a 10 cent range, like a yo-yo I spoke about in my article on options for Sirius stockholders.

As I wrote in my last article on Sirius, your perception and digesting information in the correct manner is the key to making good decisions. Every investor interprets events, headlines, financials, etc. in different ways. A good investor knows how to interpret these things in the correct way a majority of the time. It seems that all of the information out there shows Sirius getting to the $2.50 level (with estimates as high as $3.20) in the near future. So what is the stock still doing in the $2.15-$2.25 range?

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As you can see from early January until yesterday (stock was up to $2.23 at close on the 29th) it has maintained a price between $2.05 and $2.23 and most of the time between $2.10 and $2.18. The volume was nearly double Wednesday (90 MIL) as it normally is on days with gains.

Below I list pros and cons for reasoning behind this, a good investor will take this information, form his or her own theory behind it, and make a decision from there. Is the stock ready to jump past $2.40 (been a resistance point) or will it frustrate myself and other Sirius longs with the "up 3 cents, down 2 cents" day after day?

Con: Insider Selling: I mentioned in an article before, where there is enough smoke, there usually is a fire. This seems like a "fire sale" of officers holding this stock. One point to consider is that many of these inside transactions were options exercised by the officers, so the news may or may not be as bad as many have portrayed. Not knowing ahead of time of the details of whether a possible Liberty buyout is happening or not, this does send up a red flag in my eyes, but does not mean the stock necessarily will not run up prior to the 6th, or after. The question is to what level and will it maintain or trek backwards.

Pro: Auto Sales Outlook: The word on the street is that the total autos sold for the month of February should fall somewhere between 1.05 and 1.1 million for the month. This would be an improvement over last year and also put the yearlong pace at 14 million, which would be up from 13.3 a year ago. As many of us know already, this stock is heavily tied to the auto industry because 65% of new cars sold with an XM receiver are potentially a new customer (after the trial). If the churn rate holds, this should be a good thing for the company's financials, especially with the price increase taking affect.

Con: Liberty pre arrangement: Although I do not find this as a definite by any means, there has been chatter how a deal may be in place with multiple large holders of the stock to purchase their blocks of shares instead of getting all from the open market. If this is true, depending on how much of a stake Liberty could acquire from these deals, the overall offer price (if Liberty does move forward with the takeover of course) would be less, as they would need less shares to obtain either the 51% or the 80% of the company. I believe that even if this is true, Liberty will have to get some of the shares from the open market so though it is a con, again may not be as bad as it sounds.

Pro: New Target price: John Tinker from Maxim, has issued a BUY rating on the stock with a price target of $3.20. He is basing this on the recent price increase, sub growth rate among other things. He expects EBITDA growth of 20% to about $900 million, which he states is 3 or 4 times greater than other companies in their field. He believes it is possible to see over 30 million subscribers by end of 2013 which he thinks would more than double the current EBITDA projections.

There are varying price targets on the stock with a median of around $2.50, which is about 11% above the current price.

In closing, I believe there are many ways you can interpret this data. As you can see there are both pros and cons to initiating a position in the stock. I am long Sirius and have been riding this for over a year now, I am not going anywhere. If Liberty just leaves this company alone, let Mel continue to work his magic and keep their 40% stake, you could also see buybacks in the coming months as well which would drive the value up. But for now, I believe March 6th (and leading up to it) will be telling and until then, we can just enjoy the ride.

Disclosure: I am long SIRI.