On Monday, Rosenblatt Securities adjusted its price target on Sirius XM Radio (NASDAQ:SIRI) significantly, moving from $3.40 to $28.00. Despite this substantial change, the firm maintained a Neutral rating on the stock. The revision of the price target comes in the wake of last week’s merger between Liberty Media and Sirius XM and the subsequent 1/10 reverse stock split that was a part of the deal.
The analyst at Rosenblatt noted the updated estimates following the merger and reverse split, which necessitated the adjustment in the price target. This new target also takes into account a revised expectation for the enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple for the year 2025. The firm now anticipates a 7.0x multiple, which is closer to current levels, compared to the previously assumed 8.0x.
The rationale behind the unchanged Neutral rating lies in the current market conditions for Sirius XM. The analyst pointed out that sluggish subscriber and revenue growth are evident within the company, which in turn provides limited potential for an upward re-rating of the stock. This outlook suggests that while the merger and reverse split have been factored into the new price target, the firm does not foresee significant positive changes in the company's market performance in the near term.
Sirius XM's stock price adjustment reflects the recent corporate actions and market assessments. The company, known for its satellite radio services, now has a recalibrated price target that aligns with the structural changes post-merger and the analyst's view of its valuation in relation to its financial performance projections.
In other recent news, Sirius XM Radio Inc. completed a significant merger with a subsidiary of Liberty Media Corporation, leading to an increase in the price target to $32.50, as adjusted by Evercore ISI. The newly formed entity will continue to operate under the Sirius XM name. This development is a result of a series of agreements between Sirius XM and Liberty Media, including a Reorganization Agreement initially dated December 11, 2023, and subsequently amended on June 16, 2024.
On the other hand, Deutsche Bank revised its price target for Sirius XM to $3.00, citing lower estimates for the company's EBITDA and free cash flow. The bank emphasized the importance of subscriber growth for revenue and EBITDA expansion.
In its Q2 2024 earnings report, Sirius XM revealed an 8% sequential increase in adjusted EBITDA, a year-over-year improvement in margins, and a 6% increase in free cash flow from the previous year. Despite a decline in subscriber and advertising revenue in the SiriusXM segment, the company reported a 2% revenue increase in the Pandora (OTC:PANDY) and off-platform segment.
To foster growth, Sirius XM has implemented several strategic initiatives, including a revamped streaming experience, a new in-vehicle pricing model, and the expansion of 360L installation rates, as well as plans to open a European tech hub.
InvestingPro Insights
In light of Rosenblatt Securities' revised price target for Sirius XM Radio (NASDAQ:SIRI), investors may find additional context from InvestingPro data and tips useful. Sirius XM is currently trading at a low P/E ratio of 7.33, suggesting that the stock may be undervalued relative to near-term earnings growth. This aligns with the analyst's revision, as it may indicate room for an upward re-rating if market conditions improve.
Moreover, the stock's performance has been under scrutiny, with a notable decline over various timeframes. According to InvestingPro data, the 1 Month Price Total Return as of this year is -18.16%, and the YTD Price Total Return has reached -54.18%. This significant pullback could be capturing investor attention, especially since the InvestingPro Tips highlight that the Relative Strength Index (RSI) suggests the stock is currently in oversold territory.
Despite the challenges, Sirius XM has maintained dividend payments for 9 consecutive years, with a current dividend yield of 4.34%. This may appeal to income-focused investors, especially in a volatile market environment. For those considering a deeper dive into the stock's potential, there are additional InvestingPro Tips available at https://www.investing.com/pro/SIRI, providing further insights into the company's financial health and market position.
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