Is Sirius XM stock finally poised for a comeback in 2024?

The biggest thing holding back one of this year’s underperformers is that it’s now fading in the rearview mirror. Sirius XM Holdings (SIRI) has now completed its combination with media mogul John Malone’s controlling interest in the satellite radio platform. The Liberty Sirius XM Group tracking stocks that have been a distraction and historically traded at a deep discount to common stock were officially absorbed into the parent company after Monday’s market close.

There will be a transient confusion. The 1-for-10 reverse stock split that took place at Tuesday’s open could prove troubling, especially given the poor fate of most companies that have chosen to go down this usually desperate path to listing for eligibility purposes. The share count itself does not expand, but with a higher float than Sirius XM could affect short-term trading behavior on the long and short side of the deal. Some arbs that have been in the chase to cash in on the phasing out of the last two years may sell now that the mission is complete.

There’s a lot going on right now. It should be worth it for Sirius XM shareholders who are suffering until the dust clears. Let’s look at why this could be the bottom the opportunists have been waiting for.

A new sound

This isn’t the first time Sirius XM has tried to simplify a situation by combining two publicly traded entities. There were two growing but unprofitable satellite radio providers until regulators approved the combination of Sirius and rival XM to create a satellite radio monopoly 15 years ago. Sirius XM is no longer a growth stock. It hasn’t seen double-digit organic revenue growth in 10 years. However, the platform has become a predictably profitable media giant.

The stock has lost 51% of its value this year, making it one of five stocks with a market cap of more than $10 billion that will be more than halved in 2024. The long-awaited end of the the pursuit did not excite the investing community. It’s also not as if business has deteriorated substantially since the start of this year. The business model is a radio play that has been slowly disappearing for a long time. No one is surprised by the increase in revenue, and now the number of subscribers is marginally negative. It doesn’t mean that Sirius XM’s market cap deserves to be halved this year, or that the value of the debt-laden enterprise falls by more than 25% in that time.

Image source: Getty Images.

A perfect price for an imperfect stock

Sirius XM reiterated its earlier guidance on Tuesday. It continues to model $8.75 billion in revenue and $2.7 billion in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in 2024. It adjusted its free cash flow projection from $1.2 billion to $1 billion, but that $200 million. haircut is related to the transaction and historical exits at Liberty Sirius XM Holdings. The business itself is not affected.

Income investors will see the consistent dividend continue. The reverse split accordingly changes the payout per share tenfold to approximately $0.27 per share over the year. Sirius XM is still up just over 4%, as it did on Monday.

Question marks remain. Sirius XM has 33 million subscribers, but has 618,000 fewer accounts than it had when the year began. Churn is near all-time lows, but Sirius XM can’t get younger drivers to jump on board with the same enthusiasm as those who signed on a generation ago. It doesn’t mean things will end badly.

Sirius XM has time. The profitability of this scalable business model will be tested if revenue and subscribers slowly shrink, but generating 10-figure free cash flow gives it time to get it right and the means to buy its way back to growth.

The review continues to be kind. Sirius XM trades for less than 9 times earnings. Analysts see a return to top-bottom growth in 2025, even if that may seem wrong in this otherwise bearish climate for stocks. Sirius XM is a cheap, differentiated media stock that the market forgot about in 2024. Once the initial malaise of Tuesday’s reverse split wears off, it might be a good time to remember this particular titan again.