NEW YORK ( TheStreet) -- Shares SiriusXM (SIRI - Get Report) 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. "