Sirius XM Radio Inc (NASDAQ:SIRI) said it added 715,000 net new subscribers in the second quarter, raising its total subscribers to more than 25 million.Amid the improvement, the satellite-radio operator boosted its full-year outlook for total net subscriber additions to 1.5 million from its previous view of 1.4 million.

goldman sachs

Sirius XM Radio Inc (NASDAQ:SIRI) has been benefiting from strong subscriber revenue growth, and said Tuesday that improved automotive sales helped drive 15% growth in net additions over the second quarter.

Goldman Raises Sirius XM Radio’s Price Target

Goldman Sachs Group Inc (NYSE:GS) updated their model ahead of quarterly results, following Sirius XM Radio Inc (NASDAQ:SIRI)’s release of stronger than expected 2Q13 net adds. They forecast 2Q revenue/adjusted EBITDA of $938mn/$278mn (+11.7%/+17.1% yoy), both slightly above consensus of $935/$273mn. Goldman Sachs raise their 12-month price target to $4.25 (from $3.50), as they roll forward to 2014YE.

Goldman Sachs : Strong auto sales provide growth tailwinds

Pre-released 2Q13 net adds of +715k (+15% yoy) were a post-merger record, and above GS/consensus of +641k/+587k. Strong auto sales remain a significant tailwind for SIRI, as better growth should translate into stronger self-pay volumes in forward quarters. They highlight June SAAR of 16.0mn was the highest since 2008 and continue to see upside to 2013 targets for self-pay and total net adds.

FCF generation, balance sheet flexibility drive robust shareholder returns

Goldman Sachs Group Inc (NYSE:GS) noted that Top-line growth of +11.7% is likely to outpace opex, driving +17.1% growth in EBITDA and continued margin expansion (+140bp yoy). They highlight an anticipated acceleration in EBITDA growth in 4Q13 post a reset in contract terms with one of SIRI’s larger OEM partners. With robust EBITDA/FCF growth (20%+/30%+ in 2013) and an under-levered balance sheet, Goldman Sachs believe Sirius XM Radio Inc (NASDAQ:SIRI) maintains a unique ability to shrink its share count via buybacks by nearly 30% in the next three years.

Capital allocation in focus

Goldman Sachs Group Inc (NYSE:GS) forecast $500mn in 2Q buybacks (in-line with 1Q). Sirius XM Radio Inc (NASDAQ:SIRI) has indicated it is working towards formation of a Hold Company structure, which could enable a potential acceleration in buybacks; Goldman Sachs Group Inc (NYSE:GS) look for updates on the call, with timing likely in August/early September.