Wunderlich Maintains Hold On Sirius XM Ahead Of Q4 Print

Matthew Harrigan of Wunderlich Securities on Wednesday maintained a Hold rating on shares of Sirius XM Holdings Inc (NASDAQ: SIRI) with a $3.50 price target ahead of its fourth-quarter results, which are scheduled to be released Thursday before market.

Harrigan expects Sirius to report a 7.7 percent increase in sales to $1.079 billion. This equates to a 9.4 percent increase in adjusted operating income to $356.3 million with a 33.0 percent operating margin. The analyst also expects free cash flow to increase by 7 percent to $324 million.

Harrigan adds that subscribers should be up a net estimated 575,000 with an estimated conversion rate of 41.4 percent, driving a 6.8 percent gain in customer installed base to 27,309,299 at an estimated average revenue per user of $12.46.

Looking forward, Harrigan notes that the January 2015 CES show demonstrated that automakers are "avidly" competing to provide mobile infotainment bouquets with more connectivity in the car, presenting potential competition to Sirius XM.

"If annual additions are just one million with one percent annual blended pricing power this implies fair 2015 value just north of $2.85 with a 15 percent reduction in anticipated EBITDA," Harrigan wrote while discussing valuation. "We see ample pricing power for more affluent consumers especially with a better streaming product, but are wary of the blended pricing albatross off marginal customers."