BofA Securities has resumed coverage on Sirius XM Radio (NASDAQ: NASDAQ:SIRI), issuing an Underperform rating with a price target of $23.00.
The reinstated coverage comes with a cautious outlook on the company's future performance.
The analyst from BofA Securities outlined several reasons for the Underperform rating. Concerns were raised about the expected muted subscriber growth and a shift in the average revenue per user (ARPU) due to a mix shift towards streaming services. These factors are anticipated to affect the company's revenue stream.
Additionally, the analyst pointed to increased capital expenditures, which are projected to be between $450 million and $500 million. These expenses will be directed towards technology stack and broadcast infrastructure, which are expected to impact free cash flow (FCF) negatively for the remainder of 2024 and into 2025.
In other recent news, Sirius XM Radio has seen several important developments. The company's Q2 2024 earnings report showed an 8% sequential increase in adjusted EBITDA and a 6% increase in free cash flow from the previous year, despite a decline in subscriber and advertising revenue. In addition, Sirius XM's merger with a subsidiary of Liberty Media Corporation has led to various adjustments in its stock price targets by different firms.
Benchmark has lowered its price target for Sirius XM to $43.00, while maintaining a Buy rating. Seaport Global Securities also adjusted its financial model for Sirius XM, resulting in a lowered price target of $34.00, but still maintains a Buy rating.
On the other hand, JPMorgan resumed coverage of Sirius XM with an Underweight rating and a price target of $20.00, citing concerns about the company's long-term growth prospects. Similarly, Morgan Stanley resumed coverage with an Underweight rating and a price target of $23.00, pointing out the company's declining revenue and adjusted EBITDA.
InvestingPro Insights
Recent InvestingPro data provides additional context to BofA Securities' Underperform rating on Sirius XM Radio (NASDAQ:SIRI). The company's market cap stands at $9.09 billion, with a P/E ratio of 7.95, suggesting a relatively low valuation compared to earnings. This is further emphasized by an InvestingPro Tip indicating that SIRI is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.52 for the last twelve months as of Q2 2024.
However, aligning with the analyst's concerns about muted growth, SIRI's revenue growth for the last twelve months as of Q2 2024 was -0.65%, with a more pronounced quarterly decline of -3.2% in Q2 2024. Despite these challenges, the company maintains a solid gross profit margin of 48.98% and an operating income margin of 23.05% for the same period.
InvestingPro Tips also highlight that SIRI has maintained dividend payments for 9 consecutive years, with a current dividend yield of 3.97%. This could be attractive for income-focused investors, although it's worth noting that 3 analysts have revised their earnings downwards for the upcoming period, potentially reflecting the challenges outlined in the BofA Securities report.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Sirius XM Radio, providing a broader perspective on the company's financial health and market position.
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