4 Reasons Sirius XM Is Cheap

These have been tough days for Sirius XM Radio (Nasdaq: SIRI  ) investors. When shares of the satellite-radio provider fell below $2 last month -- the first time that had happened since early January -- I figured it wouldn't last.

Well, four weeks later, I have to concede defeat on that call. Sirius XM hasn't traded for more than $2 a share since May 23, and it spent all of this past week buried below $1.90.

The good news is that there are a few catalysts that can shake Sirius XM out of its dreary trading range, moving the stock back up above the $2 mark. Let's explore a few.

1. The second-quarter report is now just weeks away
Sirius XM has historically posted its second-quarter financials during the first week of August. It should be a solid report.

Revenue growth should continue to accelerate since January's 12% rate increase, as more subscribers work their way into the higher monthly subscription fees. It's not a coincidence that analysts see revenue for the second quarter rising 11%, followed by an 11.5% uptick in the third quarter, and 11.7% for all of 2012.

Retention rates were surprisingly strong during the first quarter, and healthy auto sales and encouraging signs on the economic front bode well for another solid report.

2. The Liberty Media saga is coming to a close
There was probably a fair deal of speculative sizzle to Sirius XM's stock when it seemed as if Liberty Media's (Nasdaq: LMCA  ) would have to pay a juicy premium for control of the company. Well, we now see how easily it's been to grow its effective stake to 46.2% without moving the stock.

Liberty's push to achieve de facto control is now easier to stomach. At the very least, a premium is no longer priced into the stock.

3. Streaming isn't the end of satellite radio
There always seems to be some new streaming star on the horizon. Pandora Media (NYSE: P  ) is now serving up more than a billion hours of Web-served music a month, and its current slate of 51.9 million active listeners is 52% ahead of where the fast-growing service was a year earlier. Spotify has also taken the country by storm since last summer's arrival.

Now Songza is the new proverbial Sirius XM killer. It's the top music app across all Apple (Nasdaq: AAPL  ) devices right now, and that means folks are using Songza on their iPhones and 4G iPads when they could very well be tuning into satellite radio instead.

The streaming platform touts that it's "100% free" as a jab to Sirius XM, before taking a shot at the ad-shackled free version of Pandora: "No audio advertisements and no monthly listening limit."

I don't know. It seems as if Songza is a bigger threat to Pandora than it is to Sirius XM. Either way, my point is that Sirius XM has been able to grow -- increasing both its subscriber count past 22 million and its monthly rate to $14.49 a month -- against the backdrop of healthy growth by Pandora and a revolving door of hot streaming apps of the week.

4. Sirius XM is cheap
With more than 6.5 billion shares outstanding after accounting for Liberty Media's 40% preferred share stake, it's easy to wonder whether Sirius XM isn't as cheap as it low share price suggests. Sirius XM closed at the price of a fast-food burger, but we're looking at a market cap north of $12 billion.

Sirius XM is worth it, though. Sure, a price-to sales multiple just shy of 4 is high for the low-margin radio industry, but keep in mind that Sirius XM's scalable model, proprietary content, and shrinking programming costs make this a unique situation among broadcasters. This isn't your cable provider jogging to keep pace with growing network fees. Sirius XM controls the content, and it's been doing a masterful job of keeping it inexpensive for itself yet valuable for listeners.

On the earnings front, Sirius XM is just starting to break out. It may not seem cheap at roughly 25 times this year's earnings, but we're also talking about a 2015 projected earnings multiple in the single digits.

In time, Sirius XM will prove itself to be the bargain that it has become.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next Rule-Breaking multibagger, a free report reveals all.

The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns shares of Liberty Media and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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  • Report this Comment On June 17, 2012, at 8:02 PM, doubting wrote:

    Rick,

    Thank you for your words of wisdom! In this case a simple and honest look is brilliant. I wonder why virtually everybody who writes about siri cannot say something like, "it will take a calamity of our entire economy to bring down Sirius.” In a normal, not rosy scenario the company will be growing at about 1.7M to 2M new subs annually for the next five years. This argument cannot be disputed because the company has proven that it can grow better than the market for the past three not very good years, and siri market is so much better today than even six months ago.

    It is obvious that the company is virtually dominating the market. 2012 numbers speak for themselves - $3.3B+ revenue; about $650M profit (about 20% profitability); about $900M adjusted EBIDTA and $700M+ fcf, and $1.5B in the bank, if the company chooses not to pay off 2015 debt of about $260M. Only morons or manipulators or both cannot see that this is just the beginning of a huge growth curve in the next five years with (1) capex being minimal and, as you very soundly and factually point out, (2) programming costs going down and (3) the price increase gradually materializing. I would add here double digit ad revenue growth.

    All these tall stories about zillions of threats to siri from press release and mom and pop businesses DO NO HOLD WATER. One could exploit this nonsense during the near and post bankruptcy period when everybody with few exceptions was catching at a straw. However, now that the company is 15% profitable and added 1.7M new subscribers in 2011, these tactics can only bamboozle THE IGNORANT HERD.

    Siri is not just cheap today but rather super cheap. To me, siri is a mini apple in the making and the time to enter the market with siri is absolutely unique today. Once the Liberty "uncertainty" clears out, and I agree that this may happen within weeks or a few months, the stock will run away. This is justified 100% by so many components that have already materialized or are about to fall in place. Price increase is in place; OEM will be over 14M in 2012 vs. 12.8M in 2011; six thousand used car dealerships (1/3 of all) working with the company that will produce about 1M gross and 350K new subs in 2012 alone.

    I am 100% convinced that any skewed article about siri has an agenda to drive the stock price down or the author is clueless and should never ever be published by a respectable platform.

  • Report this Comment On June 18, 2012, at 1:19 PM, Honestguy wrote:

    Still does not explain why Mel is dumping all his shares. Could it be possible that if Liberty does take control that a tender offer will be made for SIRI shares once the company gets absorbed into Liberty?

    GoFigure..

  • Report this Comment On June 18, 2012, at 3:35 PM, doubting wrote:

    It is public information that Mel is NOT dumping anything. 60M options that vested are being sold per certain pre-announced philanthropic schedule where Mel has ZERO control. I repeat ZERO control.

    Please do some minor research before using the word "dumping". It appears that an extremely well orchestrated campaign at SA and The Street with contributors like Roccos and Camerons et al. churning out dozens of shameful posts targeting with amazing accuracy the herd with incessant lies and fact rigging bears its fruits on guys like you and so many others. These sites and some others have excelled in manipulating and brainwashing the HERD w/r to sirius xm.

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