Sirius XM Radio is trading near its 52-week high of $1.88 after an analyst upgraded the stock to “buy.” The stock shot up 4% after the upgrade was issued on Wednesday to close at $1.84. (But it dropped to close at $1.76 on Thursday.)
Gabelli & Co. analyst Brett Harriss based his upgrade in part on expectations that the satellite radio company will soon raise its subscription price after the expiration of a three-year freeze that the company agreed to when the FCC approved the merger of Sirius of XM in 2008. “With a relatively modest subscription price, we think SIRI can raise prices without significantly impacting consumers’ budgets.”
The analyst also likes the greatly improved balance sheet at Sirius XM, which could give it the flexibility to start returning cash to investors by initiating stock buybacks by the latter half of 2012. Harriss projects that the satellite radio company will generate $3.1 billion in revenues and $785 million in EBITDA in 2011.
RBR-TVBR observation: No doubt there are plenty of people who pay the full subscription price for Sirius XM and would pay an increased price as well. The dirty little secret is that you can pay a lot less by threatening not to renew, in which case the company’s telephone solicitors will readily bargain down to a much, much lower price.