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We upgrade our recommendation on SIRIUS XM Radio (SIRI) to Outperform based on its record-high net subscribers addition in the second quarter of 2012. This improved performance was mainly due to strong management execution on the back of rising auto sales.

We expect the company to improve in several other operational metrics, including adjusted EBITDA, free cash flow and further penetration in the U.S. auto sector, in the second quarter. Despite price rise of its services, SIRIUS XM has generated record-breaking net subscribers growth in the last two successive quarters. Solid conversion rate and effective marketing strategy helped the company to achieve this milestone.

Management predicted that this momentum will further intensify in the rest of fiscal 2012 and accordingly raised its prior guidance for fiscal 2012 revenue and net subscribers growth. Further, Satellite Radio 2.0 services will also boost its future financials.

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