Sirius XM (SIRI) at 7-Year High May Signal Time to Sell

NEW YORK (TheStreet) -- Sirius XM (SIRI) was trading near its highest price since 2007 on Wednesday amid speculation that the satellite radio broadcaster may be poised for a pullback ahead of its third-quarter earnings announcement scheduled for tomorrow morning before the market open.

Shares were trading at $4.12, just below the $4.18 high water mark hit earlier in the day.

Sirius is up 3,358% since tumbling to 10.5 cents in February 2009 during the the financial crisis. But since streaming music service Pandora (P) which went public in June 2011, Sirius has gained a still impressive 106% compared to its rival's 101% advance.

Much of Sirius' gains this year have been in-line with the broader market's movements, with patches of volatility in mid-October from political uncertainty in Washington and June (a possible hangover from the 'Sell in May' mantra). Sirius shares have added 43% in 2013.

As for third-quarter earnings, analysts surveyed by Yahoo! Finance expect earnings of 2 cents a share on $969.67 million in revenue, a 12% increase from the same quarter a year ago. In the second quarter 2013, the New York-based company recorded $940 million in revenue, a 12% year-on-year gain.

In July, Sirius revised its full-year 2013 guidance to net income of $1.14 billion on more than $3.7 billion, and an additional 1.5 million subscribers added throughout the year.

Though Apple's (AAPL) iTunes Radio and Pandora are encroaching on general consumer-based markets, Sirius XM continues to strengthen ties with the auto industry. Earlier in the month, the company announced its acquisition of Agero's connected vehicles unit, which solidified its relationships with original equipment manufacturers (OEMs), developers of Sirius-enabled equipment for vehicles.

Sirius XM has deals with automakers including General Motors (GM), Mercedes and Ford (F) to have factory-installed Sirius-enabled equipment in car models. The broadcaster says it is installed in more than 50 million vehicles.

In October, Sirius' management authorized a $2 billion stock repurchase program in installments over November this year and January and April 2014. 

TheStreet Ratings team rates Sirius XM Radio Inc as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate Sirius XM Radio Inc (SIRI) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, solid stock price performance, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 0.8%. Since the same quarter one year prior, revenues rose by 12.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has slightly increased to $273.11 million or 7.61% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -16.09%.
  • Compared to its closing price of one year ago, SIRI's share price has jumped by 40.74%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The gross profit margin for Sirius XM Radio Inc is rather high; currently it is at 64.74%. Regardless of SIRI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SIRI's net profit margin of 13.35% compares favorably to the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Media industry and the overall market, Sirius XM Radio Inc's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.

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