Can Sirius XM Stock Keep Hitting New Highs?

By Markets Fool.com

Image source: Sirius XM.

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A strong quarter sent shares of Sirius XM Radio (NASDAQ: SIRI)nearly 5% higher yesterday. The rally following the well-received financial update sent the stock as high as $4.41 on an intraday basis. That's a fresh 52-week high.

It's actually a 10-year high. You have to go back 10 summers to find the last time that the stock traded higher, and that was when Sirius was a stand-alone provider of satellite radio, trying to compete against the slightly larger XM. A merger of equals would be announced a year later, completed the year after that. The bottom line here is that Sirius XM has never commanded a market cap as high as it does right now.

Pumping up the volume

Sirius XM is in good shape. Revenue clocked in at a record $1.2 billion for the second quarter, 10% ahead of where it was a year earlier. An 8% uptick in subscribers -- Sirius XM is now at more than 30.6 million after nabbing 587,000 net new additions during the past three months -- and a 3% increase in average revenue per user (ARPU) helped drive the overall double-digit percentage growth. Higher rates and more ad revenue per user helped push ARPU to a record $12.78 per month.

Revenue growth had decelerated in the past three years, but that trend will reverse itself in 2016 if the second half of the year lives up to the first half's performance. Sirius XM's monthly churn rate has held steady at 1.8%, so cancellations are holding up. The conversion rate is at 40%, indicating that just two out of every five buyers of cars with satellite radio receivers installed wind up paying for the service. That's near a historic low -- something that the market expects as Sirius XM dives deeper into the mainstream -- but it's actually a sequential improvement.

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Walking on sunshine

Sirius XM's prospects keep improving. It's boosting all elements of its guidance. Sirius XM routinely raises some parts of its outlook with every passing quarter, but this time it's leaving no stone unturned.

Sirius XM now expects to close out 2016 with 1.6 million net new self-pay subscribers and 1.7 million net new total accounts. It was 1.4 million self-pay and 1.6 million total net additions earlier. The forecast for net new total accounts was 1.4 million when the year began. That's also where it was a year earlier and it wound up with 2.3 million net additions in 2015.

It's not the only metric that Sirius XM is propping higher.

  • Sirius XM now sees revenue approaching $5 billion for all of 2016, up from $4.9 billion.
  • Adjusted EBITDA is going from $1.78 billion to $1.8 billion.
  • Its free cash flow goal is rising from $1.4 billion this year to approaching $1.5 billion.

You can't go wrong when you're beating Wall Street expectations, and following that up with higher guidance. As long as Sirius XM continues to grow its subscriber base it should continue to be a winner on Wall Street given its scalable model. Sirius XM stock is at a 10-year high now, but it may not be the last time.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.