Ignore the Noise: Sirius XM's Outlook Has Never Looked Brighter

| About: Sirius XM (SIRI)

Last week's action in shares of SIRI clearly has some people nervous, to say the least. While I do issue trading alerts for those that like to trade the equity, I feel it's important to focus on the facts and look at the bigger long term picture. That picture, I would like to remind you, has never looked better for Sirius XM.

The biggest problem facing the company is that it failed to provide guidance, which would have allowed analysts to raise their projections. Without the company setting a bar for itself, we need to set a bar for the company, just as Barton Crockett of Lazard did when he increased his target to $1.65 while setting his own EBITDA projections.

Sirius XM did increase its 2010 EBITDA guidance to $600 million yesterday, which represents a 30% increase over 2009. Historically, Sirius XM CEO Mel Karmazin has grown EBITDA at no less than 20% throughout his career. Taking this into account, a fair and reasonable 2011 EBITDA estimate would be $720 million, which is far less than anyone else is projecting.

The company did explain that auto sales projections for 2011 are currently so vastly different that estimating next year at this time is difficult. What we do know, however, is that auto sales in October accelerated and the outlook for 2012 exceeds the numbers that will be posted this year. It is also possible, and more likely than not, that the company is skiddish without a deal with Howard Stern inked at this time.

In 2011, Sirius XM will be allowed to increase prices for the first time in its history. Even a nominal increase of $1.00 to $5.00 per month will result in huge increases to revenue, free cash flow and of course, 2011 EBITDA. While analysts and naysayers may point to current valuations as excessive, it is imperative to realize that these valuations are based on incorrect or incomplete assumptions. I know of no analyst that is projecting Sirius XM's 2011 EBITDA to come in above $700 million. The upside potential created by this oversight is enormous.

Facing no near term debt concerns, lowered borrowing and interest expenses, reduced capex and a continued auto recovery, the long term outlook for Sirius XM has never been better in the history of satellite radio. Temporary drops become buying opportunities. We've been through this before. Forget the noise and do your own homework on Sirius XM.

Disclosure: Long SIRI

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Tagged: , Broadcasting - Radio
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