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On Jul 1, 2014, we issued an updated research report on SIRIUS XM Holdings Inc. (SIRI - Analyst Report). The company continues to generate strong revenues and has also achieved a record EBITDA and witnessed improved ARPU growth in the last quarter, mainly attributable to a robust telematics market and strong auto sales in the U.S.

SIRIUS XM has delivered negative earnings surprise only in the fourth quarter of last year, with an average beat of a negative 33.33%. The company reported improved financial results for the first quarter of 2014, wherein its bottom line was on par with the Zacks Consensus Estimate while the top line surpassed the same.

SIRIUS XM owns an extensive satellite network that provides audio content through more than 170 channels, covering the whole of the U.S. 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. Continuous launch of innovative services coupled with renewal of contracts with major networks will likely act as tailwinds for the company while moving ahead.

SIRIUS XM is set to diversify its business model from a pure radio entertainment provider to a web-based safety and navigation information provider for cars. The company has strong telematics partnerships with almost all major car manufacturers, including Acura, BMW, Honda, Hyundai, Infiniti, Lexus, Nissan and Toyota.

SIRIUS XM expects the number of new cars sold with satellite radio to reach 11 million in 2014 as against 10.7 million last year. The figure is expected to double over the next five years. Thus, SIRIUS XM remains highly optimistic about achieving nearly $100 million in fiscal 2014 from its connected vehicle service business. Moreover, the acquisition of the connected vehicle services division of Agero is expected to be a long-term positive for the company.

Recently, SIRIUS XM reached an agreement with Ford Motor Co. (F - Analyst Report) to provide the latter’s customers with a five-year subscription to SiriusXM Traffic and SiriusXM Travel Link. These services will be available on all Ford vehicles, including the 2015 models equipped with navigation facilities.

On the downside, SIRIUS XM is largely dependent on the future of the U.S. auto industry, which at present is poised for strong growth. Therefore, even a minor fluctuation in auto sales may significantly affect the company’s financials. Moreover, a highly leveraged balance sheet coupled with stiff competition from Internet music service providers, inclusive of Apple Inc.’s (AAPL - Analyst Report) iTunes online radio service, will continue to act as headwinds for the company going forward.

SIRIUS XM currently carries a Zacks Rank #3 (Hold).

A better-ranked stock worth considering in this sector is LivePerson Inc. (LPSN - Snapshot Report) with a Zacks Rank #1 (Strong Buy).

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