Per my earnings preview for Sirius XM (SIRI), I want to update my readers on what has since transpired. SIRI released earnings last Thursday and if you have read my earnings preview, you will know what I was looking for in this release. Overall, I am very happy with the earnings and conference call. I’ve been digesting these earnings and taking into consideration other factors to reevaluate my thesis.
Fundamentals are of importance to me, yet, they are not the only factor I consider in my overall Portfolio Management Strategy. While we all wish that the irrational beast known as the market would consistently price stocks with respect to the fundamentals, history tells us that is not always going to happen when it should. Therefore, I also take trends, the overall market sentiment, and various catalysts (not necessarily tied to fundamentals) into consideration. Since I am active throughout the day, I also take notice of emotional reactions and try to dissect the market in a psychological manner. This method helps me to more accurately decide what action I should take and when I should take it. If I am right 50% of the time, that is a significant win. I let my winners continue to ride up while I shave off some shares to lock in realized profits. The key to my strategy is being very protective by cutting losses quickly when I am wrong. In doing so, I have much less ground to make up so my profits are not eaten up. As my loyal readers know, I have zero loyalty to any stock. While many investors will treat a stock like part of the family, I, on the other hand, will treat it as an acquaintance whom I have no problem giving the boot when they overstay their welcome. With that being said, let’s dig into the pertinent details of SIRI’s earnings release and conference call.
I was primarily looking for net income, revenue expectations, subscription estimates, and making sure that costs were contained. I am fairly happy with all that I have seen from their earnings. The pro forma fourth quarter 2009 net loss was $25 million as compared with a loss of $248 million in the fourth quarter of 2008. On a GAAP basis, the fourth quarter 2009 net income was positive $14 million compared to a loss of $246 million in the 2008 fourth quarter. The pro forma revenue grew 4% in 2009 to $2.53 billion. Mel Karmazin stated he expects revenues to grow 7% in 2010 and exceed $2.7 billion, below analysts’ expectations. While I would like to see SIRI expect higher growth, I also appreciate companies which provide conservative guidance and regularly beat it. A favorite company of mine to watch, which does this particularly well, is Apple (AAPL). Now that SIRI is finally getting their financials up to speed, I would like to see them follow that same path.
Karmazin says SIRI expects to grow subscribers in 2010 and add over 500,000 net subscribers this year, which will exceed the company’s previous high of 19 million at the end of 2008. One idea for long-term growth, frequently presented in the conference call, was in regards to used cars. For a while, only new cars were setup to handle satellite radio. Now, many of those new cars are the ones being sold on the secondary market, which will assist in reaching a wider demographic. I like that long-term catalyst to assist in future growth along with the constant reiteration in the call stating SIRI will be a strong cash flow generator over the coming years.
Also of importance was what Karmazin said in regards to an R/S. Karmazin stated to avoid the delisting, he does not seem to think SIRI will need to use an R/S to boost the PPS over $1. If the PPS cannot close above $1 for the necessary length needed, he feels SIRI can obtain an extension versus needing an R/S. With that being said, I am not worried SIRI will need an extension or an R/S to accomplish this goal.
As I predicted in my earnings preview and kudos to those who agreed and took action based on it, we witnessed a sell-the-news reaction even though fundamentals were strong. This is why fundamentals are not the only factor I consider when evaluating a stock. I sold some shares over $1.10 and am now accumulating more around $1. Those easy profits are now realized, not unrealized which can be lost in the blink of an eye. A small to mid-sized individual investor has an advantage over large funds with the ability to move quickly, in or out of a stock, when need be. I take full advantage of this, as we are mainly at a disadvantage to large funds whom will always know more information than us, and sooner than us. That is why trends are very important to me. Right now, SIRI has a favorable risk/reward PPS and as I stated above, I am accumulating shares around $1. Some analysts are starting to predict the PPS should move upwards of $1.20 and I agree. I will be looking to exit some of my position at that time for a nice gain. With plenty of hot stocks on my radar, I do not want to be caught overly invested in SIRI for too long because after the $1.20 range is met, we could stay stagnant for a while. Nothing is more frustrating than watching your money sit in a stagnant stock when interest in a money market account could gain more profits. I try to pay close attention to the opportunity cost of being in a stock at any given point in time, as I would rather put my money to work elsewhere if my short-term thesis is lackluster.
After locking in some profits when we move towards the $1.20 range, I will let the rest ride as I am playing with the house’s money. If I was a buy and hold type investor, I would feel comfortable buying at these levels and holding for the latter part of the year. However, as many of you know, my style of choice is to take profits when I can and use those funds to make profits elsewhere in the meantime. After reviewing earnings, I am bullish SIRI for the short and long-term, as this underdog company has finally proven the naysayers wrong. SIRI has some serious staying power. Do your own homework to see if you agree. Thanks for reading Kudrn’a Stock Market Blog. Good luck out there.
Mike
Random News: Don’t forget to watch Team USA get gold today! Sorry my Canadian friends.
At the time of publication, Kudrna was Long SIRI but positions can change at any time
