Citi Launches SIRI Coverage with a Buy Rating
Earlier this morning, Citigroup began coverage of Sirius XM with analyst Jason Bazinet labeling the stock a Buy with $2.20 price target.
In his note Bazinet says that he expects “many years” of subscriber growth coming from the used car market with a potential 2.6 million gross additions per year until the service tops out at around 34 million total subscribers.
Bazinet also expects free cash flow to potentially double to about $740 million in 2012 due to strong profit margins, tax breaks, and modest capital expenses. Because of this, he imagines a future where profits could be concentrated to even fewer shares if the company repurchases an estimated $1.25 billion in stock over the next two years.
This is good news for investors on the heals of the recent Miller Tabak upgrade from Hold to Buy just a couple of weeks ago. Now both analysts have a short term consensus of $2.20.
Good news for sure Spencer. However, my concerns are short term since you have previously alerted investors to the challenge that SXM will have this month in order to meet its guidance of 1.6 M for 2011. I understand this is based on auto sales for Q4. I was wondering if you could provide some reasons as to how SXM was able to get 583,000 subs in Q2, 2010 when there were only 2.9 million new auto sales that quarter? Hopefully, this quarter will be somewhat similar to that quarter?
Certainly….
Gross additions was driven by a substantial ramp-up in production. Overall Gross additions was over 2 million and churn was better at 1.8%. Deactivations were at only 1.44 million. In addition the take rate was above 48%.
This quarter there will be at least 400,000 more in deactivations. The take rate is down to less than 45%, and churn is at 1.9%. A few key components I laid out to hit guidance were getting take rate up, and improving churn to 1.75%
Thanks for the explanation, Spencer. However, wasn’t
there a ramp up in Japanese auto production in the fall of this year trying to recover from the tsunami disaster or was that too late to impact Q4? Another plus this Q is that SXM should have more subs as a results of the pre-owned auto program, right? SXM didn’t have that in 2010. Also, I have noticed a huge effort this Q to retain subs with discount incentives…shouldn’t help improve churn and take rates?