By Demian Russian
With a new research report issued this morning, Maxim Group Senior Media Analyst John Tinker reiterated his BUY rating on Sirius XM Radio (NASDAQ:SIRI) and raised his price target on the stock from his previous $3.20 PT to $3.35.
Tinker was impressed with Sirius XM Radio’s second quarter performance and noted the quarter’s “strong net subscriber additions.” He points to the fact that Sirius XM has already reported 1,026,638 net new sub adds for the first half of the year, which suggests management is effectively offering guidance towards only 573,362 net new sub adds in the second half of the year — which would translate into a 35% decline in year-over-year subscriber growth. “This is conservative, in our opinion, as the company has reported strong new sub add numbers in the first half of 2012, despite price increases having been introduced to ~50% of self pay subscribers,” Tinker said.
Tinker also rose his full-year 2012 net new subscriber addition estimate from 1.56 million to 1.78 million, which eclipses management’s 2012 net new subscriber growth guidance of “approaching 1.6 million.” Tinker is estimating that Sirius XM will report net new sub adds of 748,502 in the second half of the year, reaching 23.7 million total subscribers by year’s end, which he notes is still conservative as it translates into a 14.6% decrease in year-over-year growth. Tinker expects Sirius XM Radio’s subscriber base to reach 25.12 million by year-end 2013.
Tinker noted that Sirius XM’s ongoing initiatives in the used auto market, now with a 6,000 dealer base, reduces the cyclicality associated with the U.S. new vehicle sales SAAR (Seasonally Adjusted Annualized Rate). “SIRI is continuing to forecast a 100 million satellite radio-equipped vehicle base by 2017, up from an estimated 44 million today, suggesting that the market opportunity continues to be significant,” said Tinker.
In addition to raising his full-year 2012 net new subscriber addition estimate from 1.56 million to 1.78 million, Tinker also raised his full-year 2012 and full-year 2013 revenue estimates to $3.43 billion and $3.86 billion respectively, and he raised his full-year 2012 and full-year 2013 EBITDA estimates to $928 million and $1.17 billion respectively. He raised his FCF (Free Cash Flow) to $740 million, or $0.12 per share, for full-year 2012 and $986 million, or $0.17 per share, for full-year 2013.
John Tinker’s new $3.35 price target on Sirius XM Radio is based on 20x full-year 2013 FCF per share of ~$0.17, post stock buyback of about $1.6 billion or 650M shares. He compares SIRI’s valuation with Clear Channel (CC Media Holdings, Inc., PINK:CCMO), which he notes is trading at about 10.3x the EV/EBITDA consensus for full-year-2013 estimates. Clear Channel is growing EBITDA at ~2.2% year-over-year — but with ~$20 billion in debt. In contrast, Tinker notes that SIRI is trading at 12.6x his EV/EBITDA estimates, but is growing EBITDA at 26% year-over-year in full-year 2013 and 24.2% year-over-year in full-year 2014, according to his estimates. Tinker says that this kind of growth is “significantly above the more mature programmers and distributors, which tend to have multiples inline with their growth rates.”
Several previous Playground Radio interviews with Maxim Group Senior Media Analyst John Tinker are available for streaming or download at the Playground Radio Archive.
Disclosure: Long SIRI
Contact the author: DemianRussian@SatelliteRadioPlayground.com
Demian Russian is the Editor-in-Chief of Satellite Radio Playground.