If the sky is at roughly a $2.75 to $3 altitude, then Sirius XM (SIRI) could very well be on its way to flying high by the end of the year. On Monday before the conference call I asked the question of whether or not the bull run Sirius XM was in had "teeth." As is now well known the call came through with flying colors, meeting or beating street expectations on every metric, and given the 10 cent price appreciation following the call, it appears Sirius XM may have fangs and not just teeth.
The day's trading activity started off looking quite poor for such a great call. At $2.22 some investors may have been expecting the usual activity for Sirius XM following earnings. Typically there is a run up before the call only to sell off immediately after. This "buy the rumor, sell the news" effect has plagued Sirius XM on nearly every earnings call for years now. But today, this was not to be the case.
Sirius XM took off on a massive, high volume bull run, blowing through resistance around $2.25 and shooting skyward to $2.34 in short order on six times average daily volume of 191 million shares. This is the highest volume up day for Sirius XM since May 3, 2011. Investors may remember that date, which started a 40 cent run over 2 weeks from $1.96 to $2.36. A similar run from today's open would place the share price at $2.60. That's something to seriously consider.
The price did retrace later in the day but the previous resistance level now provided support, and the share price bounced back up to a close of $2.30 for a 10 cent gain. Today's activity was very strong and will be hard to ignore on the street. Short? I hope you covered. Long? I hope you held on. On the sidelines? I hope you got in early.
Something notable from the conference call today was that Sirius XM realized 3 billion in NOLs on their balance sheet, placing their earnings at 48 cents per share on this one time write. On July 25th I covered the likelihood of this in an article here. This is a move of strength, showing that Sirius XM has demonstrated over the past 3 years that they can use these NOLs, and that they will be using these NOLs in the future. Spencer Osborne wrote a great piece covering the potential effects of this. It's well worth a read. I'd like to touch on what Spencer said within the comments, when asked about his projections assuming one takes into account these NOLs going forward.
"I project that 2013 guidance for Adjusted EBITDA will be at about 1.05 billion and that will be announced in November of this year. It will be interesting to see what they do with debt
6 months out....
A multiple of 17 would put the stock at $2.50 to $2.60
A multiple of 18 at $2.70 to $2.80
A multiple of 20 at about $3
Right now the stock is at a multiple of 18. $2.50 will be the top for a settling point. Spikes can run much higher but will tend not to hold."
Since Sirius XM has traditionally traded with a higher multiple as Spencer notes in his article, I still stand strong on my $2.75 end of year target, but can also see the possibility of it reaching $3, at least on an intra-day basis, by year end.
Investors should remain aware that on the journey skyward, Sirius XM's share price may dip as investors take profits and traders become comfortable with the trajectory and begin to play on support and resistance levels.
Investors should also keep a close eye on Liberty Media's (LMCA) conference call August 8th, as its current 46% stake in Sirius XM and pursuit of control still overshadows Sirius XM. While I don't see their pursuit of control holding Sirius XM's share price down at this point, it's important for investors to keep on top of any news surrounding the two companies in tandem.
$2.75 looked so far away when the share price was $1.80 just about a month ago. Now, with the share price at $2.30, $2.75 doesn't appear all that far off, does it? Right now I'm a happy investor as Sirius XM heads for the clouds.