SIRIUS XM Radio Inc.(SIRI), the largest broadcast radio service provider in the U.S. and the second largest entertainment subscription service provider after Comcast Corp. (CMCSA), declared excellent financial results for the third quarter of 2011. The company generated record high revenues, adjusted EBITDA and massive net subscriber additions. Management also reiterated its previously set target of net subscriber additions for fiscal 2011.
SIRIUS XM recently launched SIRIUS XM 2.0 product suite in the retail channel. SIRIUS XM 2.0 includes WiFi, Bluetooth, Internet, and will expand its existing bandwidth by 25%. It also features time shifting, replay, pause, rewind facilities and can be upgraded to higher versions. SIRIUS XM 2.0 will enhance the audio content line up of the company with new channels.
Moreover, the company has plans to launch an upgraded version of SIRIUS XM 2.0 called “Lynx”, a next-generation satellite receiver that allows the subscribers to stream content to home audio systems via Bluetooth. It will also provide high-resolution touch screen support and allow 200 hours of music storage.
The company expects to overcome the current barrier for implementing a price rise by the end of fiscal 2011 that will contribute significantly to the top-line growth going forward, in our view. Furthermore, controlled expenditure during the reported quarter coupled with reduced capital expenditure will continue to drive the company’s margin and cash flow going forward.
Earlier, Standard & Poor’s (S&P) upgraded the credit rating of SIRIUS XM from “BB-” to “BB“. S&P declared that improved operating performance and declining debt leverage of the company are primarily responsible for this upgrade.
However, mounting debt, sluggish U.S. economic growth and higher programming expenditure coupled with stiff competition from Pioneer System may act as headwinds for the stock going forward.
Thus, we upgrade our long-term recommendation for SIRIUS XM to Outperform from Neutral. Currently, it has a Zacks #1 Rank, implying a short-term Strong Buy rating.
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