Sirius Stock Down 30% So Far in 2023, What’s Next?

Sirius XM stock (NASDAQ: SIRI), a leading provider of satellite radio, has a large number of outstanding shares of around 4 billion (in 2022) which makes its stock trade at a low price in the range of around $6 to $7 levels usually. But after a 30% fall year-to-date (YTD), we believe SIRI’s short-term stock price is attractive at the current price of $4 per share. Sirius stock had a rough start to 2023 and declined from $5.84 to $4.06 YTD, negatively impacted by headwinds in advertising and a delayed recovery in the auto sales industry. Pandora also continues to struggle to stabilize its monthly active users and total listening hours. In addition, the entire company remains heavily in debt at $9.3 billion. Despite all this, the media company benefits from a historically meager churn rate, with an implied average life for new car purchases of around five years – thanks to its solid business model. By taking advantage of the advertising reach it receives through radio, Sirius XM could likely push Pandora into podcasting for further growth opportunities. And, if we consider that SIRI stock now trades at 13x forward earnings with operating margins of 23% – the long-term price could see gains.

SIRI revenue growth was flat year-over-year (y-o-y) in its fourth quarter of 2022 at $2.28 billion. In addition, a 2% increase in subscription revenue was also offset by small declines in ad revenue and Pandora. Net income for the fourth quarter of 2022 was $369 million resulting in diluted earnings per share of $0.09, up from $0.08 for the same quarter of 2021. The company’s hardware was incorporated into about 83% of new vehicles and 53% of used vehicles sold in the U.S. Also, the enabled fleet (vehicles in operation with Sirius XM radios) grew to over 150 million vehicles by the end of FY 2022. It should be noted that free cash flow fell about 15% to $1.5 billion, driven by satellite insurance recoveries in 2021 and higher income tax payments. The company has used its healthy free cash flows to repurchase 40% of its outstanding shares over the past 10 years. Of course, this trend could likely change with contracting cash flow in trend.

We forecast Sirius XM’s Revenue to be almost $9.1 billion for the full year 2023, marginally up y-o-y. Looking at the bottom line, we now forecast EPS to come in at $0.31. Given the changes to our revenues and earnings forecast, we have revised our Sirius XM’s Valuation to around $5 per share, based on 31 cents expected EPS and a 15.3x P/E multiple for fiscal 2023 – almost 18% higher than the current market price.

For the full-year 2023, the company didn’t provide specific subscriber guidance but warned that it expects modestly negative self-pay net adds for the year as economic and demand uncertainty persists. SIRI also mentioned that it expects total revenue of approximately $9.0 billion compared to a consensus of $9.29 billion, adjusted EBITDA of approximately $2.7 billion, and a free cash flow of approximately $1.05 billion in FY 2023.

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