Sirius XM Radio Inc (SIRI): The Best Is Yet To Come

Sirius XM Radio Inc (NASDAQ:SIRI) had a great 2012.Its shares rose by nearly 60% in the twelve months, and earnings per share are expected to have tripled in the period. A new report from Bank of America Corp (NYSE:BAC) Merril Lynch is optimistic about the company, setting a twelve month target more than 20% above what the shares are currently trading for.

According to the report, the most important indicator for Sirius is not its financial results. The argument for this is that Sirius XM Radio Inc (NASDAQ:SIRI) is still in a hyper growth mode. The firm doesn’t need to boost profits right now, all it needs to do is increase its subscribers. In the fourth quarter of 2012, the firm’s subscribers reached 24 million. A high proportion of that number, 80%, pay for their subscriptions giving the firm great potential going forward.

That, for Bank of America Corp (NYSE:BAC) Analysts at least, means the company doesn’t have to push down its costs in the year ahead. The firm’s earnings “miss” in the fourth quarter, for example, was due to an increase in the firm’s marketing spending. That spending, however, drove a much higher increase in the company’s subscription base than analysts had expected.

Another positive driver for the company, from the report’s narrative, is the company’s acting CEO, James Meyer. The analysts lauded the executive’s performance on the last earnings conference call. The analysts were impressed with the “clear, concise, differentiated vision for the company” that the executive espoused on the call.

The report’s authors, Jessica Reif Cohen, Judah Rifkin and Peter Henderson, were so impressed with the performance of Meyer that they imply  some presumptions of his position as the permanent CEO of Sirius XM Radio Inc (NASDAQ:SIRI). The CEO had “laser focus” on the company’s future objectives, and his knowledge of the Satellite radio industry was described as Encyclopaedic.

Shares in Sirius XM Radio Inc traded downward today by a fraction, reflecting a general malaise in a market that had been buoyant for weeks. Stock price in the company was down by nearly 0.5% at the time of writing, while the Nasdaq was down by the same. The S&P 500 was down by a slightly lower fraction.

Sirius gets a buy rating from this report and a price target of $4. The stock opened this morning at $3.20, but opened 2013 below $3. Sirius is a growth company and is+ just about the only investment around for any who believe in satellite radio. The company has a strong moat in both infrastructure and subscriptions.

Sirius XM Radio Inc (NASDAQ:SIRI) does not have to compete with other satellite radio providers, however. It has to compete with digital music players, and particularly music streaming services. Its biggest actual competitors include Spotify and Pandora Media Inc (NYSE:P). Those companies are able to send their services directly to smart phones and other computers.

Pandora Media Inc (NYSE:P) is down by almost 20% in the last twelve months as earnings have disappointed. Sirius is still ahead in this battle, and though many argue that it can’t win over the longer term, it is certainly doing a better job right now, and investors are supporting that.

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