Sirius XM Radio announced their Q4 2010 numbers as well as their first blush at 2011 guidance yesterday. The company posted a strong 2010 in which they exceeded all guidance but, investors were nervous with the 2011 guidance. Sirius XM outlined a 2011 that mirrored 2010 rather than showing the substantial growth most were expecting. The guidance sent shares down into the $1.60's from a previous Monday high in the $1.80's.
Today the company has virtually recovered all of that pullback and is once again flirting with a new 52 week high. Why the sudden change? Mel Karmazin stated it best when he explained that the company is just not confident in being more aggressive with guidance this early in the year and with the economy in the state it is in. With a banner year in 2010, is it really all that bad to match it again in 2011?
The real story here is free cash flow. This is the one area where Sirius XM was aggressive in the guidance. They are guiding 50% growth in this area to $300 million. Free cash flow is what will allow the company some latitude for investing in other companies, paying down debt, or even share buybacks and/or dividends.
With Karmazin at type helm I would look more toward the company investing into future growth than a share buyback, but that news will sit fine with investors looking for growth.
The bottom line is that today's recovery demonstrates a confidence in Sirius XM at these levels and beyond, and that after the initial shock, people think Mel Karmazin is once again under-promising and over-delivering in 2011.
Position - Long Sirius XM Radio