Sirius XM’s Stock Price Implies that Subscriber Growth Dies, Should be $2.11

Sirius XM’s (NASDAQ:SIRI) stock hasn’t recovered much since the S&P 500 dip in August 2011 due to concerns around the worsening economy in the U.S. and Europe. In October, the stock showed some signs of recovery, but dropped by more than 5% followed by the company’s earnings announcement on Tuesday as a result of lower than expected subscriber gains.

We maintain our price estimate for Sirius XM at $2.11, implying a premium of close to 20% to the market price. We think that the business model for the company is intact, and that partnerships with big automotive companies such as GM (NYSE:GM) and Toyota (NYSE:TM) will go a long way.

It seems that the current market price reflects concerns around the economy and Sirius XM’s ability to continue growing in a sluggish environment. We already know that the retail base is declining. To add to this, economic uncertainty poses concerns around vehicle sales which are responsible for driving much of Sirius XM’s subscriber growth.

If we were to drag the trend line for number of subs in the above chart to match the current market price, the market price implies a significant slowdown. Taking into account the decline in retail subscribers, this implies that automotive subscribers will grow to by just 4 million over the course of the next 6-7 years according to our forecasts.

We believe this is woefully pessimistic and that as we see more convincing signs of an economic recovery, vehicle sales will follow and so will Sirius XM’s automotive subscribers. The 4 million figure looks too conservative to us, and we expect the stock to recover from the dip in sentiment as confidence in the economy returns.

See our full analysis for Sirius XM

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