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SiriusXM Stock Surge May Not End in 2012

NEW YORK ( TheStreet) - After nine months of M&A speculation and quarterly earnings beats colored a near 60% rise in SiriusXM's (SIRI - Get Report) stock, analysts running the numbers on the satellite radio giant's earnings outlook expect gains may carry over into 2013.

On Tuesday, Bank of America analyst Jessica Reif Cohen added the company to the bank's list of top stocks, highlighting the company's exposure to a recovering market for new and used cars, in addition to expectations of up to $3 billion in stock repurchases in the next year.

"From a fundamental perspective, SIRI is growing faster than any company in our media universe," writes Cohen in a note to clients. Bank of America gives SiriusXM shares a price target of $4 a share, a more than 40% rise from current levels.

The analyst projects SiriusXM's annual revenue, EBITDA and free cash flow growth will rise steadily in the coming years to reach 47% by 2016, as auto sales grow faster than expected and the company begins to tap the used car market. By 2017, Cohen notes SiriusXM's satellite ratio service may be in 100 million cars, roughly double its present installed base.

Meanwhile, the company may now have the right kind of leverage after debt burdens put it on the brink of bankruptcy in 2009. Specifically, SiriusXM may create earnings leverage for shareholders by financing up to $3 billion in share repurchases, calculates Cohen.

Bank of America isn't the only firm to see new reasons for optimism on SiriusXM's shares, in spite of a big stock rise that puts the company at post crisis highs above $2.80 a share.

Evercore Partners analyst Bryan Kraft upgraded SiriusXM's price target to $3.20 a share from $2.80, citing improved projections on subscriber adds in coming years. Kraft now projects SiriusXM will add between 1.8 million and 1.9 million new subscribers through 2014.

"We continue to believe that a multi-year recovery in auto sales and an expanding total addressable market will fuel subscriber growth in the high-single digit [percent] range and lead to upside to investors' expectations," wrote Kraft in a Monday note to clients.

Optimism on SiriusXM comes amid a well-publicized dance between the company and its largest shareholder, John Malone-run Liberty Media (LMCA - Get Report). Liberty Media is close to taking a controlling stake in SiriusXM, expanding on a large minority investment it made in the company when it was teetering on bankruptcy three years ago.

After Liberty Media built its stake in SiriusXM to 49.5% in September, chief executive Greg Maffei indicated at a Goldman Sachs media conference that it might replace SiriusXM chief executive Mel Karmazin once it takes full control of the company.

Still, in September, Kraft of Evercore Partners noted that the prospect of Liberty taking control of SiriusXM in the near-term is remote - and analysis indicates investors may do better to remain focused on the company's earnings trajectory.
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