By Antoine Gara

Sometimes just staying the course is a bullish indicator, and a near 3% stock surge by SiriusXM (SIRI) after it affirmed third-quarter guidance bodes well for the company.  

SiriusXM has made impressive gains in 2012, as it increased profits and subscribers far faster than some analysts expected. A surging new auto market and subscriber growth from used car sales bode well for the company, where major changes are underway. Chief Executive Officer Mel Karmazin is preparing  to step down at the end of the year and Liberty Media (LMCA) is in a position to take control of the company's board and possibly its day-to-day management. 

In third-quarter earnings released Thursday, SiriusXM posted revenue of $867.4 million, slightly beating analyst estimates, while profits came in at $74.5 million, or 1 cent a share. The company retired nearly $1 billion in bonds during the quarter, taking an earnings hit of just over $100 million for the debt reduction.

While the charge caused profit growth to slow from 2011 levels, analysts saw little reason to temper their optimism on the company's outlook and investors cheered the earnings report.

According to Bryan Kraft of Evercore Partners, the company's revenue and earnings before interest, taxes, depreciation and amortization came in better than expected, as subscription profit margins per user rose. A higher-than-expected​ turnover in customers signaled to Kraft that SiriusXM may be favoring its pricing power over subscriber retention.

Staying the course may be enough for SiriusXM to drive to new post-crisis highs above $3 in 2013, and Kraft saw no reason to change a recently raised $3.20 price target and "overweight" rating on the company's shares.

After nine months of M&A speculation, quarterly earnings beats, and a near 60% rise in SiriusXM's stock, analysts expect continued strength in 2013.

In mid-October, Bank of America analyst Jessica Reif Cohen added SiriusXM to the bank's list of top stocks, highlighting its exposure to a recovering market for new and used cars, and expectations of up to $3 billion in stock repurchases in the next year. "From a fundamental perspective, SIRI is growing faster than any company in our media universe," wrote Cohen in a note to clients. Bank of America gives SiriusXM shares a price target of $4 a share, a more than 40% rise from current levels.

The analyst projects SiriusXM's annual revenue, EBITDA and free cash flow growth will rise steadily through 2016, as auto sales grow and the company taps the used car market. By 2017, Cohen notes SiriusXM's satellite ratio service may be in 100 million cars, roughly double its present installed base.

Meanwhile, the company may now have the right kind of leverage after debt burdens put it on the brink of bankruptcy in 2009. Specifically, SiriusXM may create earnings leverage for shareholders by financing up to $3 billion in share repurchases, calculates Cohen.

Kraft of Evercore Partners projects SiriusXM will add between 1.8 million and 1.9 million new subscribers through 2014. He wrote in a Monday note to clients, "We continue to believe that a multi-year recovery in auto sales and an expanding total addressable market will fuel subscriber growth in the high-single digit [percent] range and lead to upside to investors' expectations."  

Analysts deserve a pat on the back for sticking with their fundamental expectations for the company, and in particular, its relationship with large minority shareholder Liberty Media.

When SiriusXM shares fell below $2 earlier in 2012, analysts highlighted changes in the company's relationship with Liberty Media and a recovery in its earnings, balance sheet and cash flow as reasons to stick with the stock.

Three years after Liberty Media caught the market bottom with a 40% stake in SiriusXM, investors and analysts entered 2012 with the prospect that the easy money had been made on the company. New analysis indicates there's still reason to remain optimistic.

Liberty Media gained its stake as a result of a $530 million loan it provided the satellite radio company in 2009. A standstill agreement that prevented Liberty Media from increasing its stake for three years expired in early 2012. In March, a petition with the Federal Communications Commission paved the way for Liberty Media to move towards control, which it's done with recent stock purchases.

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