Here we go again. Investors are freaking out about insider selling at Sirius XM (NASDAQ:SIRI), and they are dumping shares. At one point the stock dipped to $2.13. On Tuesday, May 1st two officers each sold shares. It is very interesting that earnings were announced on the same day:
|May 1, 2012||ALTMAN DARA FOfficer||865,324||Direct||Sale at $2.26 per share.||1,955,632|
|May 1, 2012||GREENSTEIN SCOTT ANDREWOfficer||1,386,961||Direct||Sale at $2.26 per share.||3,134,531|
First of all I want to set the record straight about the earnings. There have been numerous articles saying that the stock did not react favorably to the earnings announcement. That is absolutely not true. Sirius had gone down as low as $2.11 the week before earnings. This was due to widespread fear that the subscriber count would be lower because of the sub rate increase. However this was not the case, and the subs for Q1 actually rose 8% over last year. And the 405,000 net sub addition was actually 25% over the (admittedly low) guidance of 325,000. With this news the stock quickly rose to $2.31 a share:
|May 3, 2012||2.23||2.25||2.18||2.21||37,046,200||2.21|
|May 2, 2012||2.24||2.27||2.21||2.25||42,880,500||2.25|
|May 1, 2012||2.26||2.31||2.22||2.23||98,987,400||2.23|
|Apr 30, 2012||2.21||2.27||2.21||2.26||51,611,000||2.26|
|Apr 27, 2012||2.20||2.24||2.16||2.21||39,558,500||2.21|
|Apr 26, 2012||2.20||2.22||2.15||2.20||32,843,800||2.20|
|Apr 25, 2012||2.22||2.22||2.19||2.21||22,492,100||2.21|
|Apr 24, 2012||2.17||2.20||2.16||2.19||40,960,300||2.19|
|Apr 23, 2012||2.20||2.21||2.11||2.14||49,841,800||2.14|
What caused the seemingly flat closing prices over the next several days was simply profit taking. For investors who bought shares on April 23 for $2.11, a 10% gain in one week seemed like a good play. I have owned stocks that did not even make 10% in a year, let alone a week. This also may have contributed to the two insiders selling shares that were probably purchased for under a dollar. The announcement of their sale was filed with the SEC yesterday, and has had an impact on the stock today.
We have been round and round about why Sirius insiders are selling. Many speculated it was due to the fear of a bad earnings report. Well we found out Monday that was absolutely not the case. The entire report was awesome. The sub guidance was lifted from 1.3 million to 1.5 million for the year. And I still think that is too low. Subs were up 8% over last year for the quarter, and there is nothing in the future that says that trend won't continue for the rest of the year. That would make this year's net subs 1.8 million (last year's 1.7 x 1.08) or 300,000 over guidance. I still feel very comfortable with my prediction that there will be a 2 million net sub addition for 2012. And with these additions and the subsequent tax free income, I still feel that a $3.50 price target is in sight. And as I have said in other articles, if there is a share buyback, that number will be higher.
The company has so many things going for it this year. The smart phone apps (which now include Android and Apple), the 2.0 content with the new Latino stations (which is coming out in some new Chryslers), and the "all sports broadcasts" are just a handful of all of the new bells and whistles planned for this year. I had to laugh when I saw my daughter watching a Mavericks game on TV while listening to the Texas Rangers game on her Sirius iPhone App. She just smiled and said it was the coolest thing ever.
So now, what is going on with the stock price? As I said, the biggest influence today is the impact of the insider selling on Tuesday. My feeling is the price was also reacting to the uncertainty of the upcoming annual meeting on May 22. As most people will agree, the market does not like uncertainty at all. But that is when you can make your best deals: buy when others are afraid. The investors who have made the most money were those who bought shares several years ago. Back when the company was not consistently making money, and most people were afraid:
We find Liberty Media's applications to be unacceptable for filing because they are defective with respect to "execution" and "other matters of a formal character." Specifically, Liberty Media was unable to obtain the passwords, signatures and other necessary information from Sirius to properly file an electronic transfer of control application. Furthermore, we conclude that a waiver of basic filing requirements is not warranted, as the facts disclosed in the referenced application are not sufficient to establish that Liberty Media intends to take actions, such as conversion of preferred to common stock and installation of a board majority, that would constitute exercise of de facto or de jure control. We therefore dismiss Liberty Media's applications.
I really don't think anything bad will come from the annual meeting now. Rather, it should all be good news. Now that the FCC has dismissed Liberty Media's petition, the board will have even more power. And Liberty will be forced to buy its way up to 50%, rather than trying to take control at 40%. This will remove a lot of uncertainty and the share price should easily recover next week. The Wall Street Journal is also reporting:
The Federal Communications Commission dismissed an application by Liberty Media Corporation for approval to take de facto control of Sirius XM Radio Inc.
In a letter released Friday, the regulator said the media company's application was "defective" and "not warranted."
This is all really great news for Sirius. Now the only uncertainty that remains is the question of a buyback. Mel alluded to it on the conference call Tuesday, but still has not gotten board approval:
We believe that a good use of our cash, certainly, would be to return capital to our shareholders. We've said that before, nothing has changed. We have talked about the fact that acquisitions would be something that we would consider for our free cash flow. But I could tell you that there is just nothing that we're seeing out there that we feel anxious to want to acquire or consider acquiring. So we will continue to be opportunistic as debt is offered to us or us to reduce our more expensive debt. As we are sitting with the cash, we're not getting very much interest, obviously, on that cash. And by retiring some of the debt, as David talked, about makes really good sense for our investors to do while we continue to build up cash in a significant way to consider returning capital to shareholders when the board makes that decision.
This would be the ideal time of the year for the company to do this. Most of the time stocks trend lower in the summer making it a great time to buy. It is the old "Sell in May and Walk Away." This saying stems from the fact that many Wall Street managers vacation during the summer. So a lot of them will sell some of their positions and just relax. Others, like you and I, will sell some of our positions to pay for our vacations. That is why I like to do the opposite. Buy stocks during the summer, and take a vacation in the fall or winter. And as I said this would be the perfect time for Sirius to start buying back some of its stock.
Disclosure: I am long SIRI.