Sirius XM: Will We Seriously Finally See $2.50 Again?

| About: Sirius XM (SIRI)
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I wrote last week how I was liquidating my remaining position in Sirius (NASDAQ:SIRI) with a nice profit to take with me. Although I had set a benchmark order to sell at $2.12, I did not expect that to happen. Unfortunately, it did, but taking a huge double digit profit should not and did not signal me having a bad day. I do still own Jan 2013 options so I am not completely out of the game, but I am in this to make money, and I assume you read these articles not just because they are informative, but because they may help you make money as well.

SIRIUS XM Radio Inc. (<a href='' title='Sirius XM Holdings Inc.'>SIRI</a>)

Remember, I also still believe in the long term growth of both this company and its share price for many reasons. I also believe this to be true whether Liberty (LMCA) finally finishes off buying up Sirius and makes it part of their growing family. Given the news today regarding guidance, there is hope on the horizon.

In the last few years, our buddy Mel Karmazin has consistently under-cut the numbers of where he expects net subscribers to come in on a year over year basis. What this has done (as you see today) whether he eventually raises that number (as today) or when the quarterlies come in and they blow away the estimates, the stock price gets a nice boost. I expect today's price will probably jump only about 3-5% just based on the new good news, and (hopefully) hold or grow from that area. But today's news alone will not get the price to $2.50.

I still believe that even with the change today, this company is still under-cutting it's numbers for the year. Although they raised their guidance for net subs for the year to almost 1.6 million (from initial 1.3 estimate) they have not raised EBIDTA or FCF for 2012?

300,000 additional net subs is not a "chump-change" number. Keep it in perspective, it is almost 25% higher than they initially projected. They acknowledge that revenue will inch up to $3.4 billion (up $100M) so how does some of that $100M not fall to the bottom line?

To me this is just classic Mel coming back and keeping the prospects low so Sirius can come back a hero each times earnings are reported (next August 7). It is a pattern that although it is a welcome gift when the results are announced frankly makes things difficult from an investor standpoint.

Typically, there is a huge run up pre-earnings, and then a calm, then a pullback. A smart investor can play that to his/her advantage. So what does this mean? Does Sirius get to $2.50 (again)?

I believe yes. I feel that there will continue to be a run up pre earnings (again) and sometime in early August you will see Sirius strike the magic $2.50 number again. I also believe that Sirius cracks $1 billion (with a B) EBIDTA this year based on increased revenues as I still think the guidance is lower than they will actually come in at. I also think Free Cash Flow will increase as a result of it, maybe to $800M.

These are great things for the company, hopefully we will see a return (finally) to the $2.50 levels which this stock last was at on June 9, 2009.

Disclosure: I am long SIRI.

Additional disclosure: I am short SPY.