Dump Sirius XM Ahead Of Earnings?

| About: Sirius XM (SIRI)
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Satellite radio giant Sirius XM (NASDAQ:SIRI) will report second-quarter earnings results on Thursday before market opens and investors are on pins and needles waiting to hear details of the company's improvements. I don't expect that there will be many surprises, though. And this would be a good thing for a stock that has already gained 30% on the year.

The Street will be looking for earnings-per-share of 2 cents on revenue of $935 million - pretty conservative numbers. And given that Sirius has just announced a 15% increase in net subscriber additions for the current quarter, I have no doubt that the company should meet, if not beat these estimates.

If you recall, Sirius only grew subscribers by 9% in the first the quarter, which in of itself was no small accomplishment. And to the extent that Sirius can offer an upside surprise in revenue, say by about 3.5% higher, investors could see $4.00 print within the next couple of weeks. Equally crucial will be what the company says about free-cash-flow growth, which the company has been using to fuel its $2 billion share buyback program.

In fact, free cash flow has been outgrowing every segment of the business - surging from $15 million in Q1 2012 to $142 million in the previous quarter. But the self-pay subs number of 304,000, which was less than 2% growth in Q1, was a bit disappointing. I won't argue that any growth in the subscription model business should be welcomed, but 2% paled in comparison with the 148% growth that Sirius posted last year.

Investors will be chewing their nails waiting to hear what the company says about ARPU, which stands for average revenue per user/subscriber. Although ARPU was up more than 2% year over year, it fell sequentially from $12.12 to $12.05. It's not a huge drop, but it does reflect a potential weakness in what is presumed to be Sirius' aggressive subscriber retention program.

If Sirius is able to address its ARPU struggles to the extent that it can demonstrate that it did not have to sacrifice margin to grow subscribers, the stock will be met with a flood of upgrades - exceeding my projected high of $4.25 for the year, which will coincide perfectly with the company's aggressive buyback program. Still, investors have asked should they sell their stock before the company announces its results.

While I would never begrudge anyone for taking money off the table, I wouldn't be in such a rush to trim position, either. We've been following Sirius' trading activity pretty closely this year and I have to say that we've been on target with most of our predictions. For instance, on May 1, after we wrote a timely piece asking "how high can Sirius XM fly" during which we predicted a $3.30 jump in the share price, the stock immediately broke up to $3.33 at the open - reaching as high as $3.39.

Again, in a recent article we outlined a scenario by which shares of Sirius would continue to rise, even amid the known summer doldrums. In that article we said: "Even though Sirius has already gained more than 16% year-to-date, I believe the odds favor a push to $3.50 and possibly $4.00 before the third-quarter conference call."

Surely enough, less than two weeks after that article, the stock reached a high of $3.59, while closing at $3.53. And when you consider that Sirius reached a high of $3.77 on July 15, the stock is now just 6% off of our $4.00 target, which we predicted might occur by the third-quarter conference call.

Now, given that Sirius will announce its second-quarter earnings results on Thursday, this means that our targets are one full-quarter ahead of schedule. With this type of track record, our trading forums on StockSaints.com recently generated its highest trading volumes in recent memory. Three of the top 10 requests we've received have been about trades on Sirius. We've helped our readers to make a lot of money on this stock and we're not going to stop now.

I'm not claiming to have any special insight as to what this company is going to do or where it's heading - not to the extent that our knowledge surpasses that of the several other writers that covers Sirius. But I can say with great certainty that Sirius' growth trajectory is unlike anything investors have ever seen from this company. I'm not going to pretend that this is a flawless investment, though. There are still opportunities for improvement. But I can't in good conscious think of any reason why selling would make sense at this point.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.