Although Sirius XM’s (NASDAQ:SIRI) stock has retreated from its April 2012 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 2012 turned out to be slower than previously expected, pointing toward a slowdown ahead. But, the sales revived in June indicating that the 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.
Given the increase in average price paid per vehicle, it appears that the consumers are willing to pay for vehicle purchases.  This is a good sign because this reinforces that the vehicle sales momentum is likely to continue. The fact that people are spending more on vehicles is likely to lead to sustainability of vehicle conversion rate for Sirius XM as there is a good chance that these buyers will pay for the radio service too.
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Our price estimate for Sirius XM stands at $2.30, implying a premium of about 15% to the market price.Notes:
- Auto Sales in June Provided Bright Spot for U.S. Economy, Bloomberg, July 4 2012 [↩]
- June U.S. Auto Sales Remain Strong, The Wall Street Journal, July 3 2012 [↩]