Sirius XM (SIRI) Gaining Foothold in Auto Market

Tickers in this article: SIRI

NEW YORK ( TheStreet) -- Satellite radio broadcaster Sirius XM  strengthens its position in the automobile market through its acquisition of Agero's connected vehicles unit and partnerships with major automakers.

Speaking at the Deutsche Bank Leveraged Finance Conference last week, CFO David Frear said the $530 million Agero deal, expected to close by the end of 2013, will solidify Sirius' relationships with original equipment manufacturers (OEMs) which develop Sirius-enabled equipment for vehicles.

Sirius XM has deals with automakers including  General Motors , Mercedes and Ford  to have factory-installed Sirius-enabled equipment in car models. Sirius XM says it is installed in more than 50 million vehicles.

CEO Jim Meyer is expected to elaborate on the company's strategy at Liberty Media's 2013 Investor Meeting on October 10. The company will report third-quarter earnings on Oct. 28.

Sirius XM shares closed 2.78% lower to $3.85 on Tuesday, symptomatic of a selloff in the technology sector provoked by political uncertainty in Washington. The company lagged the S&P 500 which was down 1.23%.

TheStreet Ratings team rates Sirius XM Radio Inc as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate Sirius XM Radio Inc (SIRI) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, solid stock price performance, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 0.7%. Since the same quarter one year prior, revenues rose by 12.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has slightly increased 7.61% to $273.11 million, compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -16.2%.
  • Compared to its closing price of one year ago, SIRI's share price has jumped by 43.58%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • The gross profit margin for SIRIUS XM RADIO INC is rather high; currently it is at 64.74%. Regardless of SIRI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SIRI's net profit margin of 13.35% compares favorably to the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. In comparison to the other companies in the Media industry and the overall market, SIRIUS XM RADIO INC's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.

Written by Keris Alison Lahiff.