Strong US Auto Sales Will Drive Sirius XM Success

NEW YORK (Trefis) -- Although Sirius XM (SIRI) stock has retreated from its April levels, it may get a boost again if the company maintains the new vehicle conversion rate and the current momentum in vehicle sales sustains.

The U.S. vehicle sales for May turned out to be slower than previously expected, pointing toward a slowdown ahead. But the sales revived in June indicating full-year vehicles sales may reach a total of 14.3 million, which is even higher than the previous estimates

Car sales are important for Sirius XM as the company derives a majority of its value from in-vehicle subscriptions. (See our complete analysis for Sirius XM.)

Given the increase in average price paid per vehicle, it appears consumers are willing to keep making vehicle purchases. This is a good sign because it reinforces that vehicle sales momentum is likely to continue.

The fact that people are spending more on vehicles is likely to lead to a sustained vehicle conversion rate for Sirius XM because there is a good chance these buyers will pay for the radio service, too.

Our price estimate for Sirius XM stands at $2.30, implying a premium of about 15% to the market price.

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>p/> This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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