SIRI Stock: Why $5 Is The Next New Target Ahead of Earnings

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With gains of more than 13% so far this year, satellite radio provider Sirius XM Holdings Inc. (NASDAQ:SIRI) is set to report first-quarter earnings before the opening bell on Tuesday.

SIRI Stock: Why $5 Is The Next New Target Ahead of EarningsAfter SIRI stock traded flat in 2014, it seems the virtual monopoly Sirius XM enjoys as the only satellite radio provider is finally working for SIRI stock. But can this continue?

Analysts are broadly positive about what Sirius will say Tuesday, expecting earnings at 3 cents per share, an increase by a penny from the same quarter a year ago.

Projected earnings of 12 cents per share for the fiscal year would also mark a 50% year-over-year jump from 2014. Revenue is projected climb 9%, reaching $1.1 billion for the quarter. Full-year revenue of $4.5 billion would be a 7% year-over-year increase.

Competition is Good for SIRI Stock

These results would be impressive, given that competition from the likes of Apple Inc. (NASDAQ:AAPL) has become a concern for SIRI stock. And with Spotify now valued at more than $8 billion, and possibly gearing up for an initial public offering (IPO), Sirius XM has multiple threats to be worried about.

And then there’s the growth recently seen in the results from Pandora Media, Inc. (NYSE:P).

Still, from my vantage point, all of this bodes well for Sirius XM and SIRI stock. Why? The heightened competition indicate that Sirius XM is in the right business. It demonstrates how important music is to consumers. Plus, none of these threats are new to Sirius XM or SIRI stock.

Pandora was supposed to have “killed off” Sirius XM years ago. This was before Apple’s iPod was proclaimed the “death knell” of Sirius. And most recently, Apple’s iTunes Radio was to take a chunk out of Sirius’ subscriber growth. When that didn’t work, Apple — presumably — picked off Beats to dominate streaming audio.

And guess what Sirius has done ever since? It has executed to perfection.

In its previous four quarters, Sirius has grown its profits by an average of 35% year over year. Not impressed? In the third quarter, profits surged more than twofold.

And while Sirius is often judged more closely with traditional slow-growing media companies such as Time Warner Inc. (NYSE:TWX), that Sirius has averaged 10% year-over-year sales growth in its previous four quarters is nothing to shake a stick at.

All told, Sirius XM is kicking major tail. And SIRI stock will follow suit, heading to $5 per share in the next 12 to 18 months. It makes no sense for Sirius to be currently valued at a price-to-earnings-growth (PEG) rate of 1.10, while Time Warner’s five-year PEG sits at 1.06. In the most recent quarter, Time Warner recorded a 1% drop in revenue from a year ago; Sirius is growing at a rate of 10%.

And here’s the thing; in the next five years, Sirius is projected to grow earnings at an annual rate of 30%, compared to just 18% for Time Warner. Even Walt Disney Co (NYSE:DIS) is projected to grow earnings at just 12% annually in the next five years.

How SIRI Stock Gets to $5

Sirius should not be judged by old media standards. Accordingly, its price-to-earnings ratio of 50 — while it doesn’t scream “value” — should be tossed out the window. Based on 2016 estimates of 15 cents per share, the multiple drops to 26. Netflix, Inc. (NASDAQ:NFLX) trades at 160 times next year’s earnings, or one-sixth of Sirius’ forward estimates.

Assigning a 33 multiple to Sirius’ next year’s estimates puts SIRI stock right around $5 next year, making it one the surest bets on the market, given its solid rate of growth.

As of this writing, Richard Saintvilus held shares of Apple.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/siri-stock-5-next-new-target-ahead-earnings/.

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