Auto Sales Great for Sirius, but Not Yet - TheStreet

Auto Sales Great for Sirius, but Not Yet

New U.S. auto sales forecasts suggest the possibility of good growth for Sirius XM over the next two years, but the immediate impact could be muted.
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(Sirius XM story updated with more perspectives on the latest auto sales forecasts, and recent stock price movement.)
NEW YORK (TheStreet) -- New U.S. auto sales forecasts point toward a nice growth story for Sirius XM (SIRI) - Get Report over the next two years.

The fortunes of the Sirius are, of course, crucially tied to auto sector strength, with its satellite radios primarily distributed through automakers, retail locations and the company's websites.

According to Efraim Levy, an analyst at Standard & Poor's, new U.S. vehicle sales should rise 12.7% to 11.7 million units in 2010, and another 15% to 13.5 million in 2011. "We expect industry-wide revenues and profits to improve significantly in both years," he wrote in a recent research note.

Levy notes that the recent release of May new auto sales data has brought good news for

Ford

(F) - Get Report

, but a "mixed bag" for Toyota. While Ford sales increased 23% year to year, "recall-plagued"

Toyota

(TM) - Get Report

was the largest company to see only a single digit gain in the month. "We believe that Ford is benefiting from a combination of trouble at peers as well as favorable and improving product perception."

That said, S&P analyst Tuna Amobi projects total revenue growth for Sirius XM of about 9% and 8% in 2010 and 2011, respectively, to more than $2.7 billion and nearly $3 billion. Amobi expects Sirius to add slightly shy of 600,000 and 800,000 customers in 2010 and 2011, respectively, reaching nearly 20 million by the end of next year, after the company ended 2009 with nearly 18.8 million subscribers.

Though strong auto sales would boost gross subscriber additions for Sirius, it would also increase the costs related to those very additions, which could offset any revenue gains in the current year, said Barrington Research analyst James Goss. Sirius itself has made the same point, he added.

"The bottom line is that this would be great for the future of Sirius XM, but the very immediate impact may be more muted and will depend on timing," Goss said.

The company has deals with every major automaker, including

GM

, Ford,

Honda

(HMC) - Get Report

and

Chrysler

, "with Toyota particularly poised to become an increasingly important channel as well, as it ramps up factory installation," Amobi said. (Sirius and XM radios are also offered to rental car company customers.

In Friday trading, the company' s stock edged lower by 1% to the $1 mark. Sirius was one of the stocks that saw a "bias toward call activity" in the previous trading session, Schaeffer's Investment Research notes.

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-- Reported by Andrea Tse in New York

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