Sirius Could Splash Its Cash

Tickers in this article: F LMCA GM SIRI

NEW YORK ( TheStreet) -- Sirius XM (SIRI) reports first-quarter earnings early on Tuesday, and now that the company is profitable, investors are wondering whether CEO Mel Karmazin and his team will start giving back some of its hard-earned cash.

After the company's first price hike in its history earlier this year, as well as lower operating expenses, Sirius may have approximately $3 billion in free-cash-flow over the next few years, according to Maxim Group analyst John Tinker in a research report. But how it gets distributed is up in the air due to Liberty Media's ownership stake.

Once thought to be near bankruptcy following the merger with XM Satellite Radio and several high-priced talent acquisitions like Howard Stern , Oprah Winfrey, Martha Stewart and others, Karmazin and his team have cut debt, and free-cash-flow is expected to rise 73% year-over-year to $719 million, noted Maxim Group's Tinker.

Tinker believes Sirius will update investors on returning capital to shareholders, paying down debt or acquisitions, but "would not be surprised if Sirius downplayed the timing of the buyback as they may not want to help Liberty Media (LMCA) increase its 40% holding without paying up." He rates Sirius shares "buy" with a $3.20 price target.

John Malone and Liberty Media own 40% of Sirius after Malone's Liberty Media loaned Sirius $530 million in 2009 to essentially bail out the company.

Earnings from Ford(F) have continued to strengthen, and Chrysler recently said its first-quarter net income more than quadrupled year-over-year, which bodes well for Sirius' cash flow, as new car sales continue to be strong.

Customers have weathered the monthly price increase well, and new car sales are coming in slightly higher than 14 million, which Wunderlich Securities analyst Matthew Harrigan believes could suggest better-than-expected subscriber guidance, currently around 1.3 million. "We still believe SIRI has a superior pipe into the car, especially with non-music content dominance and the augmented Lynx radio capabilities," Harrigan wrote in his research note. He rates Sirius "hold" with a $2 price target.

Now that Sirius is generating significant amounts of free cash, it remains to be seen whether Malone and Liberty Media can exert significant pressure and get Sirius to return some of its excess cash to shareholders.

According to analysts polled by Thomson Reuters , Sirius is expected to report earnings of 2 cents a share on $803.81 million in revenue. That's up from the first-quarter of 2011, when it earned a penny on $723.84 million in revenue.

Shares of Sirius are higher in Monday trading, up 2.26% to $2.26.

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