Sirius has Serious Returns

05/26/2016 7:00 am EST

Focus: STOCKS

David Fried

Editor, The Buyback Letter

David Fried focuses exclusively on stocks that are undergoing buyback programs. For his latest recommendations, the editor of the The Buyback Letter returns to a music and media stock that has previously been a profitable holding in his model portfolio.

We bought satellite radio giant Sirius XM (SIRI) several times in 2015, and the last time in January, and it has risen to the top of our filters again.

Sirius is the world’s largest radio broadcaster measured by revenue, and the largest pay-radio service (a market leader in car radio service), with a record total 30.1 million paid subscribers.

SiriusXM creates and broadcasts commercial-free music; premier sports talk and live events; comedy; news; exclusive talk and entertainment, and a wide-range of Latin music, sports and talk programming.

SiriusXM is available in vehicles from every major car company in the U.S. and on smartphones and other connected devices as well as online. Its SiriusXM Music for Business provides commercial-free music to a variety of businesses.

It is also a leading provider of connected vehicles services to major automakers, which gives customers access to safety, security, and convenience services including automatic crash notification, stolen vehicle recovery assistance, enhanced roadside assistance and turn-by-turn navigation.

Sirius just announced it would take its Canadian unit, SiriusXM Canada (XSR), private and will pay around $275 million in the deal, boosting its stake in the unit to 70% from 37%.

The company reported that its first quarter net income totaled $171.3 million ($0.03 in earnings per share, which met the consensus estimate). Revenue was $1.2 billion in the first quarter (up 11.1% over the prior year).

This compares to $1.08 billion a year ago and also beat the consensus estimate of $1.18 billion. On the growth front, Sirius XM added 465,000 net new subscribers in the first quarter.

The sustained momentum of auto sales, where Sirius gets most of its subscribers via promotional trials, bodes well.

In December the company closed a five-year deal with radio personality Howard "King of all Media" Stern, which may indicate the company is moving beyond simple delivery of audio programming.

The company said it sees 2016 revenue of about $4.9 billion, in line with the average analysts' estimates; with 1.6 million net account additions, about 200,000 higher than the company’s initial forecast and guidance.

SIRI has been a historically robust buyer of its own shares. Management has reduced shares outstanding by 9.4% in the past 12 months.

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By David Fried Editor of the The Buyback Letter

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