By Demian Russian
Wunderlich Securities Media Analyst Matthew Harrigan issues a new research report on Sirius XM Radio (NASDAQ:SIRI) following the company’s Q2 results and conference call yesterday reiterating a HOLD rating and $2.00 price target. While Harrigan believes Sirius XM delivered credible results, especially in regards to “flashing the superiority of its cost template,” he states, “Our main hesitation on the name remains concerns on the U.S. SAAR rate, although management said on the call that all 18 experts that it monitors are looking for increased vehicle sales in 2012.”
Harrigan saw the company’s full-year 2011 subscriber growth guidance increase from 1.4 million to 1.6 million being supported by an increase in the installation rate to 65%+, noting that ”this was ample to counter the Japanese OEM and supply chain issues, as well as a moribund economy.” He also believes Sirius XM’s initiatives targeting the used vehicle market “beyond certified pre-owned vehicles” may have been a contributing factor behind the increased subscriber guidance.
Noting management’s commitment to provide 2012 guidance by the Q3 conference call, Harrigan sees the company’s 2012 results “poised to benefit from higher pricing as the FCC last week abdicated any interest in the matter.” Harrigan believes that Sirius XM needs to “premium price on the high end” while also maintaining “flexibility to continue to address the 14% of subs that are on retention programs.” He notes the previous muted response to the Music Royalty Fee by subscribers suggests “ample pricing power for all but the more strapped consumer.”
Commenting on management’s statements during the Q2 conference call regarding Satellite Radio 2.0, Harrigan believes the coming product’s software upgradeability suggests 2.0 “should have a very long market tail.” While he does not expect Satellite Radio 2.0 to have any immediate financial impact of note, as he believes the product’s success will be dependent on a revival in retail sales at resellers such as Best Buy (NYSE:BBY), he does see the product’s longevity suggested by the product’s ability to have its software upgraded, as opposed to requiring OEMs and consumers to swap out hardware.
Disclosure: Long SIRI
Contact the author: DemianRussian@SatelliteRadioPlayground.com