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What's Up with SIRIUS’s Stock Options?

|Includes: Sirius XM Holdings Inc. (SIRI)

The stock option volume for SIRIUS Satellite (NASDAQ:SIRI) has been going orbital lately.  Maybe because the company added 257,000 net subscribers in the fourth quarter of 2009, which is pretty good. Or maybe it’s in anticipation of the company’s upcoming conference call in the next few weeks.  Maybe the company is a target for acquisition and there’s also some speculation the company may execute a reverse stock split.

On the surface, a reverse stock split doesn’t seem like such a big deal, but with SIRIUS’s stock price less than $1.00, it might be a big deal for a couple of reasons.

First, on a positive note, a reverse stock split would increase SIRIUS’s stock price, potentially into a price range where institutions might consider purchasing the stock. Second, on a negative note, the company’s stock price would then be in a range where short sellers could short the company’s stock.

SIRIUS offers satellite radio services.  The company offers over 130 channels of digital-quality radio with formats encompassing sports, news, talk, entertainment, traffic, weather and data.  SIRIUS also provides 69 channels of commercial-free radio.

SIRIUS’s programming includes Howard Stern, CNBC, CNN, Martha Stewart, BBC World Service, NPR and Radio Disney.  Around-the-clock traffic and weather reports for 20 markets are also available.

SIRIUS also provides three channels of children’s TV with programs such as Nickelodeon, Disney Channel and Cartoon Network. 

SIRIUS radios are available in many new automobiles, which has been a source of the company’s troubles over the last couple of years, as sales of automobiles plummeted. 

SIRIUS’s low P/E of 6 is very attractive considering the company has a positive cash flow from operations, but the company has a very large debt-to-equity ratio, which is not so good.  On the downside, the company’s satellites have a limited useful life, so satellites will have to be replaced, which is very expensive.  The company will also face increasing competition from other forms and avenues of entertainment such as terrestrial radio, HD radio, mobile phones, iPods, MP3 devices and other next-generation technologies. As long as SIRIUS can continue to add more net new subscribers and also make the interest payments on its debt, the company should be able to survive.  But at this point it’s difficult to foresee whether SIRIUS will survive.

The company’s stock price has been on the upswing over the last year, after falling off of a cliff in 2008.

SIRI Chart

 

SIRIUS’s stock options indicate something is up with SIRIUS and we’ll probably find out what it is over the next few weeks or months.  In the interest of fair disclosure, I’m long SIRI.  I usually don't invest in companies in SIRIUS's situation, but I just couldn't resist.



Disclosure: Long SIRI