Macquarie On Sirius XM: 2017 Is 'Around The Corner!'

In a report issued Monday, Macquarie analysts Amy Yong and Andrew DeGasperi reiterated an Outperform rating and a $4.50 price target on shares of Sirius XM Holdings Inc. (NASDAQ: SIRI). According to the note, they believe the company will reduce its equity at a compounded annual rate of approximately 15 percent through 2017. This would make it the best buyback story in its industry.

Coupled with growing penetration rates in the used-car market, telematics, and the growth potential derived from SXM17, this leads the analysts to expect an increase of more than 30 percent in free cash flow per share over the next three years.

Opportunities

1) There’s vast room for buybacks, given the management’s 4x target leverage (which now stands at 3.4x). “While we are not raising our buyback assumptions for the debt raise, there is certainly potential for upside. Our forecast of US$2.7-3bn/p.a. through '17 will likely shrink equity by 32%. Each US$500m in buybacks in creases our ’16 FCF/sh estimate by 2% and fair value by ~US$0.10/sh.”

2) Young and DeGasperi estimate the company’s used-car opportunity should be “more than enough to offset a gradual slowdown in new-car sales.”

3) The analysts also expect more Sirius XM Connected Vehicle agreements for the second half of the year, as the management team completes additional wins with OEM partners, which already include JLR, Subaru and Nissan Motor Co Ltd (ADR) (OTC: NSANY). “Connected car IS an opportunity; look out for SXM17,” the specialists say.

4) SXM17 could help the company to monetize its 25MHz of spectrum.