The Q1 earnings for Sirius XM Satellite Radio (SIRI) will be announced on a conference call Tuesday morning. Emotions are running high and investors seem divided as to whether the news will affect the stock price. Many are confused as to what numbers are baked into the current price already. Sometimes the best way to clean out your dresser and find out what you have is to throw everything out on the floor and start over.
So that is what we are going to do with the stock prices. We are going to take it all apart and put it back together again. Let's look at the recent history of the Sirius XM price.
SIRI vs. S&P 500
The biggest (recent) event that changed the direction of the share price was the announcement on January 4 that the subs had gone up dramatically for Q4 2011. Net sub additions for the quarter were 540,000 which brought the total for the year to 1.7 million, 20% more than 2010. Sirius closed at $1.83 that day, right before the news was announced. Then the next day the stock shot up to $2.04 with massive volume of almost 122 million shares. This then set up the perfect short squeeze which took the shares as high as $2.19:
| Jan 20, 2012 | 2.15 | 2.15 | 2.08 | 2.10 | 56,977,000 | 2.10 |
| Jan 19, 2012 | 2.16 | 2.18 | 2.14 | 2.16 | 63,362,600 | 2.16 |
| Jan 18, 2012 | 2.13 | 2.17 | 2.13 | 2.16 | 63,145,400 | 2.16 |
| Jan 17, 2012 | 2.16 | 2.19 | 2.14 | 2.16 | 65,423,200 | 2.16 |
| Jan 13, 2012 | 2.11 | 2.17 | 2.11 | 2.14 | 81,275,100 | 2.14 |
| Jan 12, 2012 | 2.05 | 2.12 | 2.04 | 2.11 | 71,261,900 | 2.11 |
| Jan 11, 2012 | 2.04 | 2.06 | 2.02 | 2.04 | 36,889,800 | 2.04 |
| Jan 10, 2012 | 2.07 | 2.09 | 2.04 | 2.05 | 59,659,100 | 2.05 |
| Jan 9, 2012 | 2.02 | 2.08 | 2.00 | 2.05 | 75,565,300 | 2.05 |
| Jan 6, 2012 | 2.05 | 2.06 | 1.97 | 2.00 | 46,052,400 | 2.00 |
| Jan 5, 2012 | 1.90 | 2.04 | 1.88 | 2.04 | 121,839,100 | 2.04 |
| Jan 4, 2012 | 1.85 | 1.92 | 1.80 | 1.83 | 69,355,400 | 1.83 |
On February 7 Barkley Capital analyst James Ratcliffe made history when he went against most analyst ratings and gave Sirius a target price of $2.00 a share:
Ratcliffe initiated coverage of Sirius XM Radio yesterday with an underweight rating. His near-term price target of $2 -- at a time when other analysts are perched as high as $3 -- is bold. The stock closed yesterday at $2.12.
It's an interesting time to begin covering a company and pointing down. Sirius XM reports its fourth-quarter results tomorrow. Ratcliffe is either going to be crowned a genius or laughed off as a buffoon. There's no in between here.
This had a negative affect on the stock followed by the Q4 earnings announcement on February 9. Although the earnings were basically good, analysts and investors zeroed in on the sub guidance for 2012 which was 1.3 million. As you can see from the historical prices the share price slowly dwindled down. This was followed by a lot of insider sales that occurred between February 14 and February 24. These were all employees exercising stock options, but some investors panicked thinking that something must be wrong with the company.
The real panic was on February 17 when CEO Mel Karmazin announced that he would be selling almost half of his stock (60 million shares) in April. The stock then fell as low as $2.08.
| Feb 24, 2012 | 2.10 | 2.20 | 2.09 | 2.20 | 115,626,400 | 2.20 |
| Feb 23, 2012 | 2.10 | 2.12 | 2.09 | 2.10 | 36,590,400 | 2.10 |
| Feb 22, 2012 | 2.11 | 2.12 | 2.08 | 2.09 | 54,145,800 | 2.09 |
| Feb 21, 2012 | 2.14 | 2.15 | 2.11 | 2.12 | 40,007,600 | 2.12 |
| Feb 17, 2012 | 2.15 | 2.16 | 2.13 | 2.15 | 33,295,000 | 2.15 |
| Feb 16, 2012 | 2.14 | 2.16 | 2.14 | 2.15 | 18,968,400 | 2.15 |
| Feb 15, 2012 | 2.16 | 2.18 | 2.14 | 2.14 | 40,130,600 | 2.14 |
| Feb 14, 2012 | 2.14 | 2.17 | 2.13 | 2.15 | 34,597,000 | 2.15 |
| Feb 13, 2012 | 2.15 | 2.16 | 2.13 | 2.15 | 30,155,600 | 2.15 |
| Feb 10, 2012 | 2.14 | 2.19 | 2.13 | 2.15 | 49,788,400 | 2.15 |
| Feb 9, 2012 | 2.16 | 2.20 | 2.13 | 2.19 | 114,360,600 | 2.19 |
| Feb 8, 2012 | 2.12 | 2.19 | 2.10 | 2.19 | 104,175,400 | 2.19 |
| Feb 7, 2012 | 2.14 | 2.14 | 2.09 | 2.12 | 57,474,500 | 2.12 |
Here are those Sirius XM insider sales that took place in February:
| Feb 24, 2012 | BARRY THOMAS D Officer | 291,625 | Direct | Sale at $2.12 per share. | 618,245 |
| Feb 24, 2012 | BARRY THOMAS D Officer | 291,625 | Direct | Option Exercise at $0.67 - $1.04 per share. | N/A |
| Feb 24, 2012 | ALTMAN DARA F Officer | 1,093,575 | Direct | Sale at $2.16 per share. | 2,362,122 |
| Feb 24, 2012 | ALTMAN DARA F Officer | 1,093,575 | Direct | Option Exercise at $0.67 - $1.04 per share. | N/A |
| Feb 23, 2012 | DONNELLY PATRICK L Officer | 1,991,841 | Direct | Sale at $2.09 per share. | 4,162,947 |
| Feb 23, 2012 | HOLDEN JAMES P Director | 305,115 | Direct | Sale at $2.11 per share. | 643,792 |
| Feb 23, 2012 | HOLDEN JAMES P Director | 305,115 | Direct | Option Exercise at $0.14 - $1 per share. | N/A |
| Feb 23, 2012 | MEYER JAMES E Officer | 7,066,666 | Direct | Sale at $2.09 per share. | 14,769,331 |
| Feb 23, 2012 | MEYER JAMES E Officer | 7,066,666 | Direct | Option Exercise at $0.58 - $1.04 per share. | N/A |
| Feb 22, 2012 | DONNELLY PATRICK L Officer | 4,155,482 | Direct | Sale at $2.09 per share. | 8,684,957 |
| Feb 21, 2012 | DONNELLY PATRICK L Officer | 3,095,900 | Direct | Sale at $2.13 per share. | 6,594,267 |
| Feb 21, 2012 | DONNELLY PATRICK L Officer | 7,705,914 | Direct | Option Exercise at $0.67 - $1.04 per share. | N/A |
| Feb 15, 2012 | GREENSTEIN SCOTT ANDREW Officer | 3,200,000 | Direct | Sale at $2.16 per share. | 6,912,000 |
| Feb 14, 2012 | GREENSTEIN SCOTT ANDREW Officer | 6,942,034 | Direct | Option Exercise at $0.43 per share. | 2,985,074 |
| Feb 14, 2012 | GREENSTEIN SCOTT ANDREW Officer | 3,742,034 | Direct | Sale at $2.15 per share. | 8,045,373 |
On March 2, Liberty (LMCA) CEO Greg Maffei was quoted in the Wall Street Journal saying that he would like to see a Sirius XM share buyback which would eventually give the company control of Sirius and the billions of dollars in NOLs. Less than one week later Mel went on the Jim Cramer show and announced that he would be presenting a buyback plan to the Sirius XM board as a way to return capital to investors and make use of the projected 1.5 billion in cash that the company will have at the end of this year. The idea that there would be a buyback and that both the Liberty CEO and the Sirius CEO were in agreement about it sent the stock soaring again. The price went as high as $2.36 on this news.
| Mar 12, 2012 | 2.35 | 2.35 | 2.29 | 2.32 | 36,333,800 | 2.32 |
| Mar 9, 2012 | 2.33 | 2.36 | 2.32 | 2.35 | 63,998,500 | 2.35 |
| Mar 8, 2012 | 2.26 | 2.30 | 2.26 | 2.30 | 42,358,800 | 2.30 |
| Mar 7, 2012 | 2.23 | 2.26 | 2.22 | 2.25 | 25,124,300 | 2.25 |
| Mar 6, 2012 | 2.23 | 2.24 | 2.20 | 2.22 | 48,690,600 | 2.22 |
| Mar 5, 2012 | 2.34 | 2.35 | 2.25 | 2.26 | 50,232,800 | 2.26 |
| Mar 2, 2012 | 2.23 | 2.34 | 2.22 | 2.31 | 104,175,200 | 2.31 |
| Mar 1, 2012 | 2.27 | 2.28 | 2.23 | 2.23 | 47,163,200 | 2.23 |
Then on March 29, Liberty Media secretly went to the FCC and asked them to approve de facto control of Sirius in a hostile takeover attempt. Investors were very worried and the stock fell. Then Sirius fired back that the Board of Directors did not support this move by Liberty, and that there has never been a case presented to the FCC where de facto control was awarded to anyone without the approval of the other party.
This demonstrated that Sirius was in control of the situation, and if Liberty wanted any type of control it would have to pay Sirius stockholders a premium. The stock shot back up. And with the anticipated announcement of record breaking new car sales the stock went as high as $2.41. On April 5, Sirius announced that Chrysler would be rolling out the new 2.0 radios in some 2013 models.
| Apr 9, 2012 | 2.31 | 2.34 | 2.29 | 2.33 | 32,455,100 | 2.33 |
| Apr 5, 2012 | 2.28 | 2.35 | 2.28 | 2.35 | 60,947,600 | 2.35 |
| Apr 4, 2012 | 2.30 | 2.33 | 2.24 | 2.29 | 94,842,200 | 2.29 |
| Apr 3, 2012 | 2.36 | 2.39 | 2.31 | 2.33 | 104,867,200 | 2.33 |
| Apr 2, 2012 | 2.31 | 2.41 | 2.30 | 2.40 | 140,813,200 | 2.40 |
| Mar 30, 2012 | 2.28 | 2.33 | 2.26 | 2.31 | 112,741,300 | 2.31 |
| Mar 29, 2012 | 2.24 | 2.25 | 2.20 | 2.21 | 54,649,400 | 2.21 |
The stock has since fallen back down due to the fact that Mel sold (as promised) 11 million shares on April 16 and 17. And I think that investors are confused as to where the share price should be. Friday it closed at $2.21. So let's look back and analyze each thing that has happened.
First, the shares went up 20% with the announcement of the subs for Q4. That is baked in with a legitimate price of $2.19. The subs were 100,000 over guidance. If this were to occur on Tuesday, the subs would have to be 425,000 (1.3 million/4 = 325,000 + 100,000). If the stock were to respond in the same way (up 20%) the price could go to $2.65. Could the sub count go this high? Absolutely.
The second thing affecting the stock was the Ratcliff downgrade to $2 a share. I am going to have to dismiss that as ludicrous since the price has not gone below $2 in months. So that leaves the price at $2.19.
Third is the sub guidance which many investors are betting will be raised on this conference call. And fourth is the insider selling which took the price down to $2.08. I think that the guidance will have to be raised, and that the insider selling is not a cause for concern. It did not affect Apple (AAPL) stock that their insiders (including CEO Tim Cook) were selling. So I think that hit on the price was not realistic and so I am going to keep the $2.19 price so far.
The fifth thing that affected the price was the news of a buyback. This took the price all the way to $2.36. Considering that a buyback will add value to the stock, this is a legitimate addition. However, the reason the price did not stick is the uncertainty of a buyback since it has not been approved yet. That will probably not come until the annual meeting in less than a month. So we really can not say that is baked in yet. However, if a buyback is announced on this call it will send the stock way up, so watch for that.
Number six is the uncertainty some feel about Liberty. There is no reason for this. There is no way that the FCC could legally give Liberty de facto control. So the Sirius Board (at least for now) is firmly in control of the company.
Last but not least, the new car sales which took the price to $2.41 are also legitimate, and will definitely show up in the sub count. Based on all of this, I think the current price of $2.21 is a fair price if the earnings and subs just make guidance. The only thing baked into this price is the Q4 sub count. And if the company does not make guidance, the shares would fall.
But I really believe that the conference call will bring exceptional sub growth based on those car sales which in turn will bring higher revenue. Will the subs be up 100,000 again and take the stock up another 20%? A lot of analysts say no due to the price increase. But that may be offset by the subs from the internet and Apple apps. And there will be more subs and revenue from the new 2.0 radios that came out at the beginning of the quarter. At some point it will become impossible to hold Sirius down. It is getting ready to explode, so be ready.
Disclosure: I am long SIRI.
