SiriusXM Drives Straight Race to $3 a Share

Tickers in this article: SIRI LMCA

NEW YORK ( TheStreet) -- Sometimes just staying the course is a bullish indicator, and a near 3% stock surge by SiriusXM(SIRI) after the satellite radio giant affirmed its third quarter guidance bodes well for the company as it heads into a 2013 that will bring about big changes.

Already, the company has made impressive gains in 2012, as it grows profits and subscribers far faster than some analysts expected. A surging auto market and an expected in satellite subscriber growth from used car sales bodes well for the company, as its chief executive officer Mel Karmazin prepares to step down from the company at year end. Earnings momentum may also help investors see a change in ownership that will effectively put Liberty Media (LMCA) in control of the company's board and possibly its day-to-day management.

In third quarter earnings released on Thursday, SiriusXM posted revenue of $867.4 million, slightly beating analyst estimates, while profits came in at $74.5 million, or 1 cent a share. The company retired nearly $1 billion in bonds during the quarter, taking an earnings hit of just over $100 million for the debt reduction.

While the charge caused profit growth to slow from 2011 levels, analysts saw little reason to temper their optimism on the company's outlook and investors cheered the earnings report.

According to Bryan Kraft of Evercore Partners, the company's revenue and earnings before interest, taxes, depreciation and amortization came in better than expected, as per user subscription profit margins rose. A higher than expected turnover in customers, signaled to Kraft that SiriusXM may be favoring its pricing power over subscriber retention rates.

Staying the course may be enough for SiriusXM to drive to new post-crisis highs above $3 in 2013, and Kraft saw no reason to change a recently raised $3.20 price target and 'overweight' rating on the company's shares.

After nine months of M&A speculation and quarterly earnings beats colored a near 60% rise in SiriusXM's(SIRI) stock, analysts running the numbers on the satellite radio giant's earnings outlook expect current gains may carry over into 2013 .

In mid-October, Bank of America analyst Jessica Reif Cohen added the company to the bank's list of top stocks, highlighting the company's exposure to a recovering market for new and used cars, in addition to expectations of up to $3 billion in stock repurchases in the next year.

"From a fundamental perspective, SIRI is growing faster than any company in our media universe," wrote Cohen in a note to clients. Bank of America gives SiriusXM shares a price target of $4 a share, a more than 40% rise from current levels.

The analyst projects SiriusXM's annual revenue, EBITDA and free cash flow growth will rise steadily in the coming years to reach 47% by 2016, as auto sales grow faster than expected and the company begins to tap the used car market. By 2017, Cohen notes SiriusXM's satellite ratio service may be in 100 million cars, roughly double its present installed base.