What’s Next For Sirius Stock After A 26% Fall This Year?

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 26% fall year-to-date (YTD), we believe SIRI’s short-term stock price is attractive at the current price of around $4 per share. Sirius stock had a rough start to 2023 and declined from $5.84 to $4.32 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 $9.4 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 15x forward earnings with operating margins of 20% – the long-term price could see gains.

Notably, SIRI stock had a Sharpe Ratio of 0.0 since early 2017, which is much lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

SIRI revenue growth was flat year-over-year (y-o-y) in its second quarter of 2023 at $2.25 billion. In addition, a flat growth in subscription revenue was also offset by small declines in ad revenue and Pandora. Net income for the second quarter of 2023 was $317 million resulting in diluted earnings per share of $0.08, up from $0.07 for the same quarter of 2022. However, total Sirius XM subscribers came in flat at 34 million in Q2 2023, while self-pay subscribers decreased by 132,000 during the same period. SIRI’s Pandora music streaming service also lost subscribers, with monthly active users at Pandora falling to 47.4 million in Q2 from 50.5 million a year ago. It should be noted that free cash flow fell about 26% to $323 million in Q2, driven by higher cash taxes paid and increases in satellite capital expenditures. 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 as seen in FY’23 so far. By the end of FY’22, 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.

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 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 14.9x P/E multiple for fiscal 2023 – almost 16% higher than the current market price.

For the full year 2023, SIRI mentioned that it expects total revenue of approximately $9.0 billion compared to a consensus of $8.99 billion, and an adjusted EBITDA of approximately $2.7 billion. The company increased its FY 2023 free cash flow outlook to $1.15 billion from about $1.1 billion based on lower expected cash taxes and improved working capital (in the second half of 2023). As far as the ad market is concerned, the company expects y-o-y improvement in the second half of 2023.

It is helpful to see how its peers stack up. Check out how Sirius XM’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Month-to-date and year-to-date as of 9/15/2023
[2] Cumulative total returns since the end of 2016