Sirius XM (NASDAQ: SIRI), a leading provider of satellite radio, is scheduled to announce its fiscal first-quarter results on Wednesday, April 28. We expect Sirius XM stock to likely trade higher due to better-than-expected Q1 results with revenue and earnings beating expectations by a marginal difference. Sirius XM managed to grow its business for the most part of 2020, and that’s important given the headwinds faced by the auto industry early last year. The company grew its self-pay subscriber count by 909,000 to 30.9 million in 2020 and saw revenues increasing 3% year-over-year (y-o-y) to $8 billion. That said, the satellite-radio purveyor’s financial reports were decent enough, showing stability on both the top and bottom lines throughout 2020. We expect this trend to continue into Q1 as well. In addition, the availability of a Covid vaccine, contract extensions with big partners like General Motors and BMW, and a five-year extension with the iconic morning show host Howard Stern will likely beef up the company’s growth prospects going forward. Our forecast indicates that Sirius XM’s valuation is just over $7 per share, which is above the current market price of around $6. Look at our interactive dashboard analysis on Sirius XM Pre-Earnings: What To Expect in Q1? for more details.
For fiscal 2021, Sirius XM’s initial read for the year is a mixed bag. The company expects to finish 2021 with 800,000 more self-pay subscribers as compared to 2020. In addition, it anticipates revenue growth of 4% y-o-y. However, its guidance calls for an adjusted EBITDA of $2.6 billion, which is exactly where it landed in 2020. To add to this, it also expects a free cash flow of around $1.6 billion for 2021, which is just short of the $1.7 billion it delivered on that front in 2020.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates Sirius XM’s Q1 2021 revenues to be around $2.03 Bil, marginally ahead of the consensus estimate of $2.01 Bil. In 2020, declining ad revenue at Pandora as well as Sirius XM’s flagship satellite radio platform was more than offset by small upticks in average revenue per user and premium users. As it is, subscriptions generated more than 90% of the company’s revenues, suggesting that it is uniquely positioned among radio operators to survive tough economic conditions. Other than this, the company’s acquisition of a minority stake in open audio platform SoundCloud, a leading podcast management platform Simplecast, and podcasting behemoth Stitcher in 2020 – should continue to boost the company’s current revenue streams and possibly add new ones.
(2) EPS likely to beat consensus estimates marginally
Sirius XM’s Q1 2021 earnings per share (EPS) is expected to be 7 cents as per Trefis analysis, higher than the consensus estimate of 6 cents. In fiscal 2020, the company’s earnings came in at 3 cents per share as compared to 20 cents per share in 2019, due to a ~$1 billion non-cash impairment (one-time) charge related to the operating performance at the Pandora reporting unit.
For the full year, we expect Sirius’ net margin to grow 14.5% in fiscal 2021 from a mere 1.7% in 2020. This coupled with a 5% growth in Sirius XM revenues, could lead to a rise of $1.1 billion y-o-y in net income to $1.2 billion in 2021. All this could result in a possible EPS increase from $0.03 in FY 2020 to around $0.27 in FY 2021.
(3) Stock price estimate 11% higher than the current market price
Going by our Sirius XM’s Valuation, with an EPS estimate of around 27 cents and P/E multiple of around 26x in fiscal 2021, this translates into a price of just over $7, which is 11% ahead of the current market price of close to $6.
Note: P/E Multiples are based on Share Price at the end of the year, and reported (or expected) Adjusted Earnings for the full year
While SIRI stock may move higher post-Q1 results, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for New York Times vs. Vertex Pharmaceuticals shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.