On Wednesday, JPMorgan resumed coverage on Sirius XM Radio (NASDAQ:SIRI) with an Underweight rating and set a price target of $20.00, valid through December 2025. The resumption follows a period during which the firm had not rated the stock. The analyst acknowledged the positive aspects of Sirius XM's recent acquisition of Liberty Sirius, including the possibilities of improved trading dynamics and long-term inclusion in the S&P 400 index, as well as a 12% reduction in share count. However, the acquisition also led to an increase in leverage, which is expected to affect share buybacks.
Sirius XM's strategy to reduce its leverage to a target range is anticipated to halt share repurchases until 2027. While the acquisition is seen in a positive light, concerns remain about the company's long-term growth prospects. The analyst pointed out uncertainties surrounding the growth of sustainable long-term self-pay subscribers, as well as the benefits of the company's app and 360L initiatives, and its ability to reach a broader demographic.
The report also suggests that although a significant shift from high-monetization satellite subscribers to lower-priced streaming plans is not expected, some dilution in average revenue per user (ARPU) may occur due to a change in the mix of services and more aggressive pricing strategies aimed at increasing trials. The combination of a lower projected EBITDA growth profile, increased capital expenditures, and a pause in buybacks is expected to negatively affect investor sentiment towards Sirius XM.
JPMorgan's price target of $20.00 for December 2025 is based on a discounted cash flow (DCF) analysis. This analysis assumes a 10% weighted average cost of capital (WACC) and a -1.0% perpetual growth rate. The resulting valuation implies a 6.1x multiple on the company's 2026 estimated enterprise value to EBITDA and a 4.6x multiple on its 2026 estimated free cash flow per share, compared to current estimates of 6.7x and 6.5x, respectively. Additionally, Sirius XM has been added to the J.P. Morgan US Equity Analyst Focus List as a Short Idea.
In other recent news, Sirius XM Radio has experienced a series of significant developments. JPMorgan resumed coverage of Sirius XM, maintaining an underweight rating with a price target of $20.00, citing the acquisition of Liberty Sirius as a positive development but also expressing concerns about Sirius XM's long-term growth prospects. On the other hand, Benchmark lowered its price target for Sirius XM to $43.00, while maintaining a Buy rating, attributing the adjustment to more conservative valuation parameters.
Citi increased its price target for Sirius XM to $21.00, maintaining a Sell rating, highlighting the effects of the Liberty transaction and increased capital expenditures. 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. Pivotal Research, however, maintained a Buy rating on Sirius XM with a steady price target of $40.00, emphasizing the company's robust free cash flow capabilities and potential for growth despite recent challenges.
In their 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 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
Recent InvestingPro data provides additional context to JPMorgan's analysis of Sirius XM Radio (NASDAQ:SIRI). The company's P/E ratio of 6.85 and adjusted P/E ratio of 5.93 for the last twelve months as of Q2 2024 suggest that the stock is trading at relatively low multiples compared to its earnings. This aligns with one of the InvestingPro Tips, which notes that SIRI is "Trading at a low P/E ratio relative to near-term earnings growth."
However, the company's revenue growth has been negative, with a -0.65% decline over the last twelve months and a -3.2% decline in Q2 2024 compared to the previous year. This data supports JPMorgan's concerns about Sirius XM's long-term growth prospects.
On a positive note, Sirius XM has maintained a strong dividend yield of 4.54% and has grown its dividend by 9.92% over the last twelve months. An InvestingPro Tip highlights that the company "Has maintained dividend payments for 9 consecutive years," which may appeal to income-focused investors despite the growth challenges.
For readers interested in a more comprehensive analysis, InvestingPro offers 7 additional tips for Sirius XM, providing a deeper understanding of the company's financial position and market performance.
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