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Sirius XM (NASDAQ:SIRI) is bending over backwards to make sure that the fourth quarter will be a "blowout". In contrast, earnings for the third quarter, which are scheduled to be announced Thursday, November 1, look rather blah in comparison to Q4. Most analysts estimate that the company will report EPS at two cents which is the same as Q3 last year. However, those same analysts polled think the earnings for Q4 will be triple the same period last year:

Earnings EstCurrent Qtr.
Sep 12
Next Qtr.
Dec 12
Current Year
Dec 12
Next Year
Dec 13
Avg. Estimate0.020.030.550.10
No. of Analysts13.0013.0010.0013.00
Low Estimate0.010.020.530.06
High Estimate0.030.040.570.13
Year Ago EPS0.020.010.070.55

Revenue will also jump. Third quarter revenue is expected to beat last year by $103 million, or 14%. Many will question why the revenue would be up, while the earnings are not. This is due to one-time costs of paying off some of the Sirius XM debt. And revenue for the fourth quarter is expected to be $893 million which is also up 14% over last year.

Revenue EstCurrent Qtr.
Sep 12
Next Qtr.
Dec 12
Current Year
Dec 12
Next Year
Dec 13
Avg. Estimate865.62M893.05M3.41B3.81B
No. of Analysts12121515
Low Estimate858.05M884.87M3.39B3.70B
High Estimate875.00M908.00M3.43B3.96B
Year Ago Sales762.55M783.74M3.01B3.41B
Sales Growth (year/est)13.50%13.90%13.00%11.90%

Many investors think that Sirius is a very volatile stock, and they like to trade on that volatility. This can be a very dangerous move with a stock that has been going up for years. Although there are peaks and valleys in its pattern, the general trend is up, as you can see from the chart showing this past year. Even in the dips, it beat the three major indices.

Chart forSIRIUS XM Radio Inc.

The biggest mistake that investors make is to "not see the forest for the trees". Every once in a while step back and look at the big picture. Many times when we think we are at the top of a big hill (as the chart looks now), we are really in a future dip. For instance, look at the "top of the hill" in January 2012, compared with right now. The big picture becomes even more clear, if we step back three years:

SIRI vs. S&P 500

So if we consider a share price for "blah" earnings at the current $2.82 (or possibly a little lower when the market opens), compared with earnings that are triple last year, we can project a future rise. Which means that although this is the top of a hill, it is actually a dip. And as I said earlier, Sirius is bending over backwards to make sure that the 4th quarter is exceptional.

On Tuesday, the company sent millions of emails to current subscribers offering them a "free" reconditioned XM Snap radio if they take out a three month subscription for that radio. This offer will only last 24 hours, but the marketing is brilliant. They are targeting their own "happy campers". If only one out of a hundred current subs take that offer, it would add 240,000 new subscribers. And even with the discounted rate of $10 a month for those subs, it would add $5 million (over two months) in revenue for the rest of this quarter.

However, more important than the revenue is the sub number. The 2012 guidance for subs is 1.8 million net additions, and Sirius has already added 1.5 million for the first three quarters. So to meet guidance, Sirius must net a mere 300 thousand more. An additional 240,000 subs would almost double the subs for the quarter, and make the total for the year 2 million net sub additions. The big question is -- do they have that many radios to give away? I doubt it, but it plants a seed in the mind of the happy camper that a second subscription might be a good idea.

The market will be very volatile when it finally opens. Investors do not like uncertainty. Questions about the election, fiscal cliff, and the cost of Sandy will blur some people's good judgment. And traders will take advantage of that. But as you can see from the charts above, Sirius has beat the market throughout the uncertainty in the past. Whether or not there is a dip, I would buy the shares in anticipation of the fourth quarter results, and the buybacks that the company has promised.

Last March, I wrote an article in which I said that if the analysts with the high price targets of $3.20 were right, then a billion dollar buyback could send the shares to $3.63 by the end of the year. The rumored $3 billion buyback is much more aggressive than the one in my model, and analysts are projecting much higher price targets now than they were back in March. The buybacks are now baked in to the current targets, which should yield a price of over $3.50 a share after the first buyback is complete. And a $4 price is definitely possible with a more aggressive buyback:

Price Target Summary

Mean Target:3.12
Median Target:3.00
High Target:4.00
Low Target:2.25
No. of Brokers:14

CEO Mel Karmazin will be in charge until February 2013, and I think he wants to go out with a home run. If the share price does go to $4 by then, the Sirius Bulls will consider it a Grand Slam!

Disclosure: I am long SIRI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may buy Sirius XM in the next 72 hours.

Source: Sirius XM Is Gearing Up For A Grand Slam In The 4th Quarter