Sirius XM: Buy, Sell or Hold?

There’s plenty of variety when channel surfing through the offerings on Sirius XM Holdings‘ (SIR -1.42%) satellite radio platform. The same can be said for opinions about the stock itself. Sirius XM has gone from a speculative and volatile penny stock 15 years ago to a steady and profitable media powerhouse.

It does not mean that the investors were rewarded by the transformation. Despite the platform’s success — it serves 33 million subscribers right now — the stock has lost half its value over the past five years. He’s one of this year’s biggest losers, but will he stay that way? Let’s take a look at the reasons to buy, sell or own Sirius XM.

Buy Sirius XM

It’s hard to live in the shadow of the latter battleground, but the situation today is considerably better than it was when regulators dragged their feet on approving the combination of Sirius and XM that nearly bankrupted the upstart. Sirius XM is a company that has consistently generated 10-figure free cash flow for the past few years.

The best bullish argument for Sirius XM right now is its value. In a world where traditional media companies are struggling to stay afloat, spending money they don’t have on digital initiatives or profiting to the point of unprofitability in a sluggish advertising market, Sirius XM is cheap. It trades for less than 10 times trailing earnings. The earnings multiple is still a reasonable 16 if you go by Sirius XM’s inflated enterprise value.

There are growth challenges, but Sirius XM is taking extraordinary steps to return cash to its shareholders. It has been aggressively buying stocks, reducing its share count by nearly 40% since its peak a dozen years ago. It also returns money to its shareholders through a dividend that has increased every year since it initiated a payout policy in 2016. The share price low this year sees Sirius XM earn a 3.4% double.

Finally, there’s the Warren Buffett angle. Berkshire Hathaway had a stake of 36.7 million shares in Sirius XM earlier this year. It nearly quadrupled that stake to 132.9 million shares in the second quarter. Does Buffett believe in a stock that’s down 42% this year? I think I buried the led.

Image source: Getty Images.

Sell ​​Sirius XM

A stock wouldn’t be as cheap as Sirius XM if it didn’t have problems, and there are some legitimate reasons to avoid the satellite radio monopoly. Let’s start with growth, or what is now a lack of growth. Organic revenue growth has been in the single digits since 2015, and last year those top-line single-digit moves turned negative.

Satellite radio has a problem. Younger drivers are gravitating toward streaming apps in their connected cars, slowing the pace of new subscribers. Churn is in check as long-term subscribers remain, but the historically low cancellation rate doesn’t match the shrinking pipeline of new subscriptions. Sirius XM has 618,000 fewer subscribers than it did earlier this year.

There is another cause for concern for Sirius XM beyond the slow demise of its business. Media mogul John Malone owns a controlling stake in Sirius XM. It currently trades as Sirius XM Liberty Group tracking actions. Last week, Malone’s shareholders approved a plan to combine his discount tracker stock with the more widely traded Sirius XM common stock. The transaction is expected to take effect after the close of trading on September 9.

What’s so bad about the transaction? Well, some investors who own Liberty Sirius XM Group as a discounted way to play Sirius XM can cash out starting September 10th. The sell-off could be short-lived, but it’s still a potential concern for bearish media bulls. stock.

Hold Sirius XM

There are some negatives to the positives. Buybacks improve profitability per share, but Sirius XM has paid far more for many of those shares over the years than what they bring now. The end of Malone’s stock chase in two weeks may lead to a wave of selling, but it might just as well be a bell for bulls now that Liberty entertainment Sirius XM Group is no longer weighing on the satellite radio platform market. .

Stocks are cheap, but it’s hard to find a catalyst to reverse decelerating earnings growth. Buffett is here, but he also owns a sizable chunk of the tracking stock. What if they join the potential wave of sellers next month? There are question marks for a company that was once all about exclamation points.

I’m on the side of the bull here. The stock is cheap enough for a potential buy. If not tight, an activist investor might have better plans for this cash cow than just buybacks, dividends and debt repayment. A turnaround could take time, but with a healthy yield, at least investors are getting paid to wait.