Sirius XM Can Reach $2.60 if Auto Market Momentum Continues

Sirius XM (NASDAQ:SIRI) gained about 1.7 million net subscribers in 2011, thus beating its own guidance. The company expects to gain 1.3 million subscribers this year, and we would not be surprised if the guidance turns out to be conservative again.

The automotive sector, driven by sales from companies such as Toyota (NYSE:TM), GM (NYSE:GM) and Ford (NYSE:F), is expected to register growth this year. In order to understand how continued momentum in the automotive market impacts Sirius XM’s stock value, we take a look at one of the most important fundamental business drivers for the company – Sirius XM’s automotive subscribers.

See our complete analysis for Sirius XM

[trefis_forecast ticker=”SIRI” driver=”1354″]

Based on our estimates for a decline in retail subscribers and total net subscriber gains for Sirius XM, we believe that the company gained somewhere between 2.3 million and 2.4 million automotive subscribers in 2011. We attribute this to good support from the car manufacturers and dealers and healthy conversion rates. The company typically lets the subscribers have a trial run before they become paying customers.

Sirius XM’s penetration in the U.S. automobiles is still low, and hence there is a significant growth potential.

If the company can maintain the momentum seen last year, gaining close to 2.3 million to 2.4 million automotive subscribers each year, its automotive subscriber base can reach past 32 million by the end of our forecast period.

This can lead to an upside of close to 20% to our current price estimate to reach around $2.60.

Our price estimate for Sirius XM stands at $2.18, implying a slight discount to the market price.

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