Sirius XM (XMSR) Stock is a Buy That’s Hidden in Plain Sight

Satellite radio broadcaster Sirius XM (NASDAQ: SIRI) has revolutionized subscription-based commercial-free audio content programming. The company has grown its membership to 34.9 million total SiriusXM subscribers by the end of 2019 and shares hit 52-week highs reaching $7.40 on Feb. 20, 2020. The following five-weeks saw SIRI shares plunge by (-44%) to $4.11 as the  S&P 500 (NYSEARCA: SPY) tanked by (-35%) on the coronavirus black pandemic. The panic selling has created opportunistic entry levels at a much-improved valuation for astute investors seeking a long-term play with an embedded leader in this niche entertainment industry.

Audio Content Provider

The streaming content wars waged between Netflix (NASDAQ: NFLX) , Walt Disney (NYSE: DIS)

, AT&T (NYSE: T) , Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL) is a battle for compelling viewing content. However, SIRI stands all alone in the battle for ears and listening content. SIRI has a dizzying array of listening content ranging from every genre of music to talk shows to play-by-play sports broadcasts. A content powerhouse that is convenient enough to listen to and accessible through car stereos, radio hardware or streaming app. The purchase of streaming radio service Pandora enables playlist customization and platform integration as subscribers get more bang for their bucks.  

Latest Q4 2019 Earnings Results

SIRI release Q4 2019 earnings followed by a conference call on Feb. 4^th. Earnings came in-line with consensus analyst estimates of $0.05-per shares. Revenues grew 37.8% YoY to $2.06 billion beating consensus estimates of $2.03 billion. Topline guidance was lowered to $8.1 billion versus $8.22 billion estimates for FY 2020. The company expects to add over 900,000 self-pay SiriusXM subscribers with adjusted EBITDA around $2.5 billion and free cash flow of $1.7 billion. Pandora has $100 million listeners contributing to a combined total paying subscriber base of 44 million across all businesses. The average revenue per user (ARPU) for FY 2019 was a record $13.82, growing 4% YoY combined with 3% user base growth. Pandora generated $1.2 billion in ad revenues.

Next-Gen Platform Disruptions

SIRI expects to reach 80% new car penetration with built-in SiriusXM radios through OEM extension deals with Toyota, Honda and Nissan. The long-term visibility enables them to confidently stand by the 220 million fleet of installed receivers in the years to come. The next-get 360L platform incorporates a wideband chipset and backward compatible. It enables a personalized listening experience forging satellite broadcasting with two-way internet connectivity. Estimates are for two million installs by end of 2020. However, this was before the COVID-19 pandemic and estimates will likely to be cut due to factory output disruptions. This is a large reason for the exceptionally hard sell-off in the shares. The company will have to provide more transparency on the effects of COVID-19 on demand, supply and logistics.

Opportunistic Buy Levels

Using the rifle charts on monthly, weekly and daily time frames, we lay out the playing field suitable for swing traders and investors. The monthly stochastic crossed down after rejecting the 80-band. The weekly stochastic formed a bearish stochastic mini inverse pup resulting in a full oscillation move down to the 20-band. There have been two attempts to bounce through the weekly 5-period moving average (MA) to no avail. However, SIRI did form a weekly market structure low (MSL) trigger above $5.12. The daily stochastic has crossed back up for a make or break that will form either a bullish mini pup above the MSL trigger or an inverse pup if the stochastic crosses back down again. This projects a downside target near the $3.97 Fibonacci (fib) level. While it’s prudent to wait for pullbacks on make or break attempts, SIRI has not participated much in the recent SPY rally. It may be a laggard or setting up for a deeper breakdown to the weekly lower Bollinger Bands (BBs) overlapping the $3.97 fib. With a tight range, we can derive four opportunistic entry levels based on a trigger and pullback support areas. This enables prudent entry if SIRI starts to coil and patient pullback levels to get a better price average. The entry levels are: $5.13 weekly MSL trigger, $4.50 sticky 5s/super fib, $4.16 fib and $3.97 weekly lower BBs/fib. The $5.13 trigger needs to base above the $5.24 super fib to cement the MSL trigger support. Nimble traders can scalp longs off these levels and long-term investors may consider a dollar-cost averaging approach and integrate income generation through writing out of the money (OTM) covered calls.