Sirius XM Stock Has a Lot to Prove on Wednesday

10/24/17

By Rick Munarriz, MotleyFool

One of the market's best performers over the past eight years will have to pump up the volume on Wednesday morning. Sirius XM Holdings (NASDAQ:SIRI) will be stepping up with fresh financials, and the satellite radio giant will need to prove itself worthy of its stock's heady gains.

Shares of Sirius XM have soared nearly 40% over the past year, a life-altering 155-bagger since bottoming out in early 2009. The stock's had a modest 7% uptick since posting blowout quarterly results three months ago, but with the shares near this summer's 11-year highs, it's safe to say that expectations will once again be high heading into this critical financial report.

Dolly Parton at a Sirius XM Town Hall broadcast.

IMAGE SOURCE: SIRIUS XM RADIO.

Turning the dial

Analysts see Sirius XM's revenue growing 7% to $1.37 billion, which would be Sirius XM's weakest top-line showing since late 2011. Wall Street pros are banking on a profit of $0.04 a share, flat with the prior year's showing. The estimates may not suggest much in terms of year-over-year growth, but Sirius XM typically exceeds expectations and bumps at least some aspects of its full-year guidance higher.

Sirius XM's outlook for all of 2017 currently stands at:

  • 1.4 million in net additions of self-pay subscribers.
  • $5.375 billion in revenue
  • $2.05 billion in adjusted EBITDA
  • $1.5 billion in free cash flow

Steadiness has been Sirius XM's calling card. Subscriber growth itself has decelerated, and with its user base at 32 million, it's easy to wonder where the ceiling is for a service that is the most compelling to drivers logging a lot of time on the road. However, Sirius XM has been able to push through modest rate and fee hikes over the years. Its second-quarter revenue growth of 9% was the combination of a 5% increase in subscribers and a 3% bump in average revenue per user. The $13.22 in average monthly revenue per user that Sirius XM scored in the second quarter is an all-time high, and that's a record that should continue to be rewritten with every passing report.

A short squeeze may not be in the cards this time around, even with a strong report. There were 232.8 million shares of Sirius XM sold short at the end of last month, a big number but actually the stock's lowest short interest since October of last year. However, another quarter of reasonable top-line growth and even better bottom-line growth -- don't let the flat year-over-year results on a per-share basis fool you given the gargantuan number of shares outstanding -- could attract even more conventional investors to a stock that was only drawing speculators when it was a penny stock.

Sirius XM has done a lot of things right in its monster seven-year run. It will have to do one more thing right come Wednesday morning.

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