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Sirius XM Could Touch $4.60 by March

Stocks in this article: SIRI

Analysts now expect Sirius to close its fiscal 2013 year with revenue of $3.78 billion and year-end per share earnings of 7 cents, with fourth-quarter revenue reaching another record high of $982 million -- a jump of 10% from the same quarter last year.

On the debt front, SIRI's cost of debt has sunk like a stone, as the company shaved off approximately $150 million of annual interest charges from its P/L, as the company retired during the current quarter old higher-yielding notes and negotiated new notes with much-lower yields.

David Frear, Sirius' chief financial officer, stated in the third-quarter conference call:

It was another great quarter, from a balance sheet perspective. We tapped the market at opportune times in August and September, raising $1.2 billion in seven and eight year notes to retire our 8.75% notes and 7.625% notes. In the last 15 months, we have effectively refinanced the entire balance sheet, pushing out maturities, easing or eliminating covenant restrictions and lowering the average cost of our debt from 9.2% to just 5.5%.

And there's a lot more to the good news, including Sirius' potential to expand its presence with used-car owners, which includes a total of 1.5 million (7.2% of 20.7 million total self-pay subscriptions) self-pay subscribers expected by year-end.

Introduced through only 103 used car dealers at the end of Q1 2011, Sirius' used-car program includes a 90-day trial of programming from its OEM satellite equipped radio. Today with more than 10,500 dealers within the network, CEO Jim Mayer expects self-pays from used car purchases to continue growing, presumably (not expounded upon in the latest conference call of Oct. 24) from deeper market penetration of the approximately 122,000 used car dealers (IBIS World statistics) in the United States.

With the seeds planted for higher revenue through long-term contracts with auto makers (and used car dealers) resulting, so far, to better operating margins, cash flow and profitability, Sirius' stock has attracted a lot of investors who have pushed the stock price up to rather lofty levels, in my opinion.

Below, find a sample list of SIRI's valuation metrics, according to Yahoo! Finance :

Trailing P/E: 49.86
Forward P/E (Dec. 31 2014): 30.33
PEG ratio (5-year expected): 1.82
Price to Sales: 6.03
Price to book: 7.86

All of the five valuation metrics above, which I use as a starting point to further analysis, show a richly priced stock. The PEG ratio, especially, is quite high, and implies a stock growing nearly twice as fast as earnings. Rhetorically speaking, are investors expecting a doubling of Sirius' 6.54% profit margin? Maybe.

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