GS Still Bullish On Sirius XM Inc (SIRI) Radio Despite Risks

GS Still Bullish On Sirius XM Inc (SIRI) Radio Despite Risks
By Sirius XM Holdings [Public domain], <a href="">via Wikimedia Commons</a>

Analysts at Goldman Sachs Equity Research maintained their bullish conviction for the shares of Sirius XM Radio Inc (NASDAQ:SIRI), despite the presence of some risks such as competition from free radio (IP/terrestrial) and weak auto sales.

GS Still Bullish On Sirius XM Inc (SIRI) Radio Despite Risks

The analysts slightly lowered their first earnings estimates for the revenue and EBITDA of Sirius XM Radio Inc (NASDAQ:SIRI) to reflect a moderated near-term ARPU growth. Their revised estimate is -1.3 percent revenue/-0.9 percent EBITDA compared with consensus estimates, and they also reflected an 11.3 percent revenue/22.8 percent EBITDA growth year-over-year.

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According to Goldman Sachs analyst Mathew Niknam, together with his colleagues Jason Armstrong and Dan Pellegrinelli, their estimates for Sirius XM Radio Inc (NASDAQ:SIRI) for the first quarter of 2013 is still higher than the consensus/guidance because its reflects a more positive outlook on auto sales, margins, and FCF/share growth.

Niknam and his fellow analysts believe that Sirius XM Radio Inc (NASDAQ:SIRI)’s will experience more than 9.5 percent acceleration of its self-pay subscriber growth year-over-year, the highest level in recent history.

In addition, they believe that the company started buying back its shares worth approximately $375 million this quarter.

According to the analysts, they perceived a slower ARPU growth in the first quarter as Sirius XM Radio Inc (NASDAQ:SIRI) laps the rate hike in January last year, and its 2013 music royalty fees increase provide more limited impacts. They projected that the company ARPU growth will decline from +44 percent in the previous quarter to +2.2 percent in the first quarter.

However, they think the SIRI’s ARPU tailwinds from add-on services such as the Sirius XM Internet radio and Telematics , and potential rate increases will continue over the long term. The analysts also believe that customer spend will be more elevated near-term (aimed at lower churn long-term).

In a note to investors, the analysts wrote, “Despite a more guarded outlook into the 1Q print, we believe 2013 remain conservative, and continue to see upside. We expect SIRI to utilize FCF and an under-levered balance sheet (2.7x leverage, below the 3.0x low end of company targets) to aggressively repurchase shares, shrinking share count nearly 20 percent through 2015 and roughly 50 percent the next ten years.”

The analysts recommended a buy rating with $3.50 price target for the shares of Sirius XM Radio Inc (NASDAQ:SIRI). The stock price of the company is trading around $3.01 per share, up by nearly 1 percent in the afternoon trading in New York on Friday.

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