Does Sirius XM Radio Support a Bullish Run?

With shares of Sirius XM Radio (NASDAQ:SIRI) trading around $3, is SIRI an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Sirius XM Radio broadcasts its music, sports, entertainment, comedy, talk, news, traffic, and weather channels in the United States on a subscription fee basis through its two satellite radio systems. Subscribers can also receive music and other channels over the Internet, including through applications for mobile devices. Audio entertainment has always pleased consumers and is a medium that is growing in popularity. Sirius XM Radio is looking to expand its audio entertainment channels to every audio medium possible, which will surely translate to rising profits.

Shares are up recently after Sirius XM Radio’ board confirmed an additional $2 billion stock repurchase. The satellite radio provider announced that it will pay for the repurchases through available cash, future cash flow from operations, and future borrowings. Sirius XM Radio can purchase the shares on the open market or in privately negotiated transactions, including potential arrangements with Liberty Media (NASDAQ:LMCA) and its affiliates, from which the company also said that it will repurchase $500 million shares.

T = Technicals on the Stock Chart Are Strong

Sirius XM Radio stock has been flying higher in the last couple of years. The stock is currently trading near highs for the year and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Sirius XM Radio is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

SIRI

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Sirius XM Radio options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sirius XM Radio Options

40.57%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Sirius XM Radio’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sirius XM Radio look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-95.83%

0.00%

104.80%

-50.00%

Revenue Growth (Y-O-Y)

12.23%

11.52%

13.87%

13.74%

Earnings Reaction

2.71%

5.86%

1.26%

0.35%

Sirius XM Radio has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been pleased with Sirius XM Radio’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Sirius XM Radio stock done relative to its peers, Pandora (NYSE:P), CBS (NYSE:CBS), Cumulus Media (NASDAQ:CMLS), and sector?

Sirius XM Radio

Pandora

CBS

Cumulus Media

Sector

Year-to-Date Return

35.64%

169.60%

46.04%

97.00%

87.07%

Sirius XM Radio has been a poor relative performer, year-to-date.

Conclusion

Sirius XM Radio provides audio entertainment and information via subscription services to a growing listener base. A recent buyback has investors excited about the company. The stock has been surging higher in recent years and is now trading near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been rising which has left investors pleased about the company. Relative to its peers and sector, Sirius XM Radio has been a weak year-to-date performer. Look for Sirius XM Radio to OUTPERFORM.

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