Why SiriusXM (SIRI) Should Thank Pandora (P)

NEW YORK (TheStreet) -- Love for Pandora (P) has SiriusXM (SIRI) investors feeling amorous on Friday, after the former exploded 7.5% to $31.68. The Internet radio streaming service was pushed higher after JPMorgan voiced its support for Pandora, reiterating an "overweight" rating and raising its price target to $35 from $25.

Sirius, meanwhile, gained 3.3% to $3.86, sharing increased investor appetite in the Internet radio space.

Possibly influencing share movements was JPMorgan's prediction that Pandora's advertising revenue growth would accelerate 51% year over year in 2014. If more advertisers are seeing the value in Internet radio slots, Sirius will likely see spillover.

Additionally, Apple's (AAPL) iTunes Radio has failed as an industry-killer so far, something analyst Doug Anmuth applauds Pandora for preventing.

"We believe that October metrics -- which represented the first full month since Apple's release of iTunes Radio -- indicated that Pandora held up well during the launch," he said in the report.

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

"We rate Sirius XM Radio Inc (SIRI) a BUY. This is driven by a number of 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, expanding profit margins, solid stock price performance and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

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

  • The revenue growth came in higher than the industry average of 8.1%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Net operating cash flow has increased to $302.24 million or 37.49% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 7.90%.
  • The gross profit margin for Sirius XM Radio Inc is rather high; currently it is at 65.01%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.54% trails the industry average.
  • Compared to its closing price of one year ago, SIRI's share price has jumped by 31.38%, 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.
  • Sirius XM Radio Inc reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Sirius XM Radio Inc increased its bottom line by earning 53 cents a share vs. 7 cents a share in the prior year. For the next year, the market is expecting a contraction of 86.8% in earnings (7 cents vs. 53 cents).

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