NEW YORK (TheStreet) -- Shares SiriusXM (SIRI) surged roughly 7% in late trading on Friday after the music industry's Copyright Royalty Board issued a smaller than expected judgment on music royalty costs for the satellite radio giant.
However, Friday's share gains may be overdone, according to an industry analyst. SiriusXM won't see its music royalty costs spike, but that wasn't justification for the late Friday stock surge, Evercore Partners analyst Bryan Kraft wrote in a note to clients.
Near the market close on Friday, the CRB said that it will increase the rate it charges SiriusXM to broadcast music on its premium satellite radio network. In 2013, the rate will rise to 9% of SiriusXM's total revenue from 8% in 2012, and that rate will increase by 50 basis points a year through 2017, when royalty rates will hit 11% of revenue.
According to Evercore's Kraft the rate increase was larger than expected, but the decision was a positive for SiriusXM's stock given the gradual approach to those increases."We view the outcome as positive for the company and the stock because: (1) the increases in the rate remain gradual, enabling SIRI to continue to pass through music royalties on customers' bills; and (2) the uncertainty has now been removed," wrote Kraft, in the client note. The greater than expected 50 basis point step up will only hit SiriusXM's earnings by $16 million, an 'inconsequential' cost according to Kraft. While the CRB decision won't dampen Kraft's bullish outlook for SiriusXM shares - the analyst maintains a 'buy' rating and $3.30 price target - it also didn't warrant the 7% Friday rally. "[We] would not be surprised to see the stock give back some of Friday's gain on Monday," wrote Kraft after assessing SiriusXM's 20 cent Friday rise in relation to the rate decision's impact on earnings. Kraft continues to see SiriusXM as a story of top and bottom line revenue growth, warranting increasing price multiples that have helped to push the company's shares up over 50% in 2012. The CRB decision does make SiriusXM's costs quantifiable amid an otherwise improving revenue and profit picture for the satellite radio giant. In contrast, streaming music services such as Pandora (P) still battle uncertain costs to go with a muddled profitability picture.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV