We reaffirm our Neutral recommendation on SIRIUS XM Radio Inc. (SIRI - Analyst Report). The company reported mixed financial results for the first quarter of 2013. While net income was exactly in line with the Zacks Consensus Estimate, revenues fell below the same.
Why the Reiteration?
SIRIUS XM broadcasts music, sports, news, talk, entertainment, traffic and weather news in the U.S. and Canada for a subscription fee, through its proprietary satellite radio systems — the SIRIUS system and the XM system. The merger between SIRIUS Satellite Radio and XM Satellite Radio in 2008, the two erstwhile competitors, generated significant business synergies for the merged entity.
SIRIUS XM is largely dependent on the growth of the U.S. auto industry. The company holds an estimated 70% market share of the new cars sold in the face of growing competition from Pandora Media Inc. (P - Snapshot Report) and Spotify. Therefore, even a minor fluctuation of auto sales may significantly affect the company’s overall financials. Management hinted that auto sales may rise at a slower rate in 2013.
In order to retain its subscribers, SIRIUS XM introduced an innovative personalized interactive Internet radio service called “MySXM” and is expected to maintain its churn rate going forward. Meanwhile, the stock price has soared by nearly 77% in the last year. We believe that the stock is currently fairly valued.
Other Stocks to Consider
SIRIUS XM currently has a Zacks Rank #3 (Hold). Other stocks in the Broadcast Radio/TV industry which are performing well include Belo Corp. and Entravision Communications Corp. (EVC - Snapshot Report). Both these stocks currently carry a Zacks Rank #2 (Buy).