SIRIUS XM satellite service provider

Satellite radio service provider SIRIUS XM Radio Inc. (SIRI - Analyst Report) received a shot in the arm as Standard & Poor's (S&P) upgraded its credit rating from "B+" to "BB-". S&P declared that improved operating performance and declining debt leverage of SIRIUX XM are the primary reasons for this upgrade.

Overall, the S&P rating outlook for SIRIUS XM is stable. Recently, the company achieved a milestone, touching the 20 million subscriber base, which is a historic high. SIRIUS XM is now steadily moving toward stability, following the bankruptcy it was facing just a year ago.

During the third quarter of 2010, SIRIUS XM reported a significant improvement with respect to several operating metrics. Average revenue per user was $11.81 compared to $10.09 in the year-ago quarter. Conversion rate was 48.1% compared to 46.2% in the year-ago quarter.

At the end of the third quarter, the company's debt leverage was 9.9x compared to a massive 29.5x at the end of fiscal 2009. Debt-to-capitalization ratio was 0.91 compared to 0.97 at the end of fiscal 2009.

SIRIUS XM's business depends to a large extent upon automakers. The sale and lease of vehicles equipped with satellite radios is the most important source of revenues for both XM and SIRIUS satellite radio services. Improving U.S. economic conditions that resulted in the recovery of auto sector sales together with better-than-expected consumer spending enabled the company to vastly improve results.

SIRIUS XM owns an extensive satellite network covering the whole of the U.S. that provides audio content streamed over 130 channels. After Comcast Corp. (CMCSA - Analyst Report), the company is the second-largest entertainment subscription service provider in the U.S.

SIRIUS XM declared that despite facing severe economic turmoil and competitive pressure, it acquired the last 10 million subscribers faster than the first 10 million. The company now expects to add 1.3 million net subscribers in 2010, much higher than its previous prediction of 1.1 million. Importantly, this is the fourth time that management has raised its subscriber guidance for 2010. Management is hopeful that its year-end 2010 subscriber base will touch 20.1 million.

On December 9, SIRIUS XM announced that the company entered into a new 5-year agreement with its star performer Howard Stern who hosts a talk-show in SIRIUS XM. Many analysts consider the performance of Howard Stern as one of the main reasons for the company's gradual recovery in last couple years. Stern's existing contract size is $500 million for 5 years that will come to an end by end 2010. However, the company did not disclosed the financial terms of the new contract.

SIRIUS XM competes with other broadcast radio companies such as Cumulus Media Inc. (CMLS - Analyst Report) and Westwood One Inc. (WWON - Snapshot Report). We maintain our long-term Neutral recommendation for SIRIUS XM.