Sirius XM Stock Has a Lot to Prove on Thursday

By Rick Munarriz Markets Fool.com

Image source Sirius XM.

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It's earnings season, and in a few days we'll see how the holiday-containing quarter shaped up for Sirius XM Radio (NASDAQ: SIRI). We already know many of the most important details, as Sirius XM pre-announced year-end subscriber targets. The satellite radio provider had 31.3 million subscribers by the end of December, 1.7 million more accounts than it had when the year began.

Sirius XM also revealed that it expects to meet or exceed its earlier 2016 targets for revenue, adjusted EBDITA, and free cash flow.The strong preliminary report has helped send the shares to their highest levels since 2006, a couple of years before Sirius and XM completed their merger.

This is the kind of setting that could be dangerous heading into Thursday morning's fourth-quarter results. The good news may seem to be already baked into the stock, leaving little upside for what would otherwise be a blowout report.

Making waves -- radio waves

Wall Street has expectations for modest growth in Thursday's report. Analysts see revenue climbing 8% to $1.29 billion. We already know that its subscriber count has risen nearly 6% over the past year, and the balance of that 8% projected growth is coming from the average listener paying slightly more for access. Wall Street pros see a profit of $0.04 a share, just ahead of the $0.03 it earned a year earlier.

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There could be some upside to that 8% top-line growth target. As it stands, it would be Sirius XM's weakest year-over-year revenue growth since the fourth quarter of 2011. Decelerating growth is an evolutionary trademark of maturing companies, but Sirius XM's pre-announcement of exceeding its previous guidance suggests some strength here. No one will be shocked if Sirius XM's revenue grew closer to 9% for the period.

There's less wiggle room for a bottom-line surprise. Business is refreshingly steady at Sirius XM, and its gargantuan share count keeps profitability small on a per-share basis. It's coming off back-to-back quarters of $0.04 a share in normalized earnings, and that followed six periods at $0.03 a share and nine quarters of $0.02 a share before that.

Another category that has historically been a factor in moving Sirius XM's stock -- but not this time -- is guidance. The satellite radio star already initiated its outlook for the year ahead, calling for 1.3 million in net subscriber additions, revenue of $5.3 billion, adjusted EBITDA of roughly $2.025 billion, and free cash flow of $1.5 billion. It's highly unlikely that its outlook has changed since the company unveiled preliminary guidance just a couple of weeks ago.

Cracking open Pandora's box

Something that could move Sirius XM's stock is if it offers a fresh take on its potential purchase ofPandora (NYSE: P). Sirius XM execs have been sending mixed messages about the viability of bringing Pandora into its fold. Pandora would increase Sirius XM's role in streaming audio, but the cross-selling opportunities remain a mystery.

Sirius XM's pre-announcement and historically slow yet steady growth may have taken some of the bite out of the upcoming financial report, but there's nothing wrong with a boring Sirius XM.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool has a disclosure policy.