Sirius was upgraded to "hold." The New York-based company boasts a rabid fan and investor base. Though its stock has fallen 13% during the past five trading sessions (8.9% yesterday alone), it has been upgraded by
because of a fundamental improvement in its business.
Sirius swung to a first-quarter profit of $42 million, or 1 cent a share, from a loss of $50 million, or 7 cents, a year earlier. Revenue expanded 13% to $664 million. The operating margin stretched from 7.1% to 19%, and the cash balance doubled to $803 million.
Sirius has been a perennial "sell" at
because of its precarious finances. Management has repeatedly diluted investors as the company suffered losses. The shares have tumbled 27% a year since 2007. But there was undeniable improvement in the first quarter, namely, the advent of profits.
Sirius has proven that its product has a devoted and growing customer base. During the past three years, it has increased revenue 53%, annually, on average. In the latest quarter, Sirius finished with close to 19 million subscribers, an increase of 1.9% from a year earlier.
Other improvements include a 10% gain in average revenue per subscriber and a drop in the churn rate, a measure of customer turnover, from 2.2% to 2%. Management plans to retire $114 million of outstanding 10% secured notes in June, ahead of schedule.
With a debt-to-equity ratio of 24, Sirius bears an unsustainable debt burden. However, the denominator in that figure is excessively low because of historical losses. If the company is on a path of sustainable profitability, debt isn't as alarming as it appears.
Still, Sirius is expensive. It trades at a price-to-projected-earnings ratio of 75 and a price-to-book ratio of 29, 320% and 815% premiums to industry averages. But its sales multiple of 1.7 and cash-flow multiple of 13 indicate 15% and 10% discounts to industry averages.
The Street Video
Although the model is warming to Sirius, it's unlikely to add it to the "buy" list in the near future. Sirius merits a growth score of 3 out of 10 and a financial-strength score of 2.9 out of 10, far below the "buy"-list averages of 6 and 7.1. It also receives a weak score for volatility.
The sell-side is a bit more optimistic, with 5, or 56%, rating Sirius "buy" and four ranking it "hold."
offers the highest target, expecting the stock to advance 35% to $1.40.
Lazard Capital Markets
predicts it will rise 31% to $1.35.
rates it "buy," but says it's fairly valued at $1.
is "neutral" on the stock.
During the fourth quarter, eight of the 15 largest shareholders, including
, purchased more shares. Five, including hedge fund
, decreased holdings and two held steady.
-- Reported by Jake Lynch in Boston.