It’s Time to Buy More Sirius XM

This satrad superstar is performing great

Jul 31, 2014 at 11:26AM

In its latest earnings report, Sirius XM (NASDAQ:SIRI) reported solid fundamentals and growth, but the market yawned. Sirius performed not only on the operational side of the business, but on the financial side, too. The company bought back 6% of its outstanding shares, and the company now trades at a very reasonable 19.5 times this year's projected free cash flow. And John Malone – the man behind Sirius's majority owner Liberty Media (NASDAQ:LMCA) – will continue to undertake an ongoing leveraged recapitalization. That means more buybacks are on the way, creating even more value for shareholders. That's why my Special Situations portfolio is buying more Sirius.

A solid second quarter
Sirius continued to show good growth in the second quarter, and management raised expectations for the full year. Revenue was $1 billion, up 10% year over year. That was driven by 475,000 net new subscribers, and the subscriber base grew 5% from year-ago levels, to 26.3 million.

Adjusted EBITDA climbed 31%, to $370 million. Free cash flow grew 42%, to $335 million. And with more than $1 billion in share repurchases, free cash flow per share soared even faster, up 47%.

But let's back up to those repurchases, which are really helping to drive value for shareholders. In 2014, Sirius has already repurchased $1.6 billion in shares, including a massive 6% of its share count in just the second quarter. With more than $2 billion remaining on its repurchase authorization, I expect the company will continue to aggressively buy back stock. It still has a fully untapped $1.25 billion credit line.

So what price are we paying for this performance. Using fully diluted share count of 6.2 billion shares, the market cap comes to $21.2 billion. With expected free cash flow for 2014 of $1.1 billion, investors are paying a little over 19 times for this cash machine. If we assume another $2 billion in buybacks at an average price of $3.50, then Sirius today is trading at 17.5 times free cash flow.

And while Sirius's leverage target is now 4 times EBITDA, it won't surprise me to see that inch up to 4.5 times in the next year. That would allow more room for buybacks. So there's still a lot to like about Sirius. And with Liberty Media not selling into the buyback, that Malone entity becomes an increasingly larger majority owner of Sirius. So you see there's more than one way to take over this satrad superstar. For more on Sirius, follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board.

Foolish bottom line
So with that performance, my Special Situations portfolio will be acquiring another $500 in Sirius stock on the next market day. The long term still looks on track and the stock should return very good returns for shareholders from today's price.

Jim Royal has no position in any stocks mentioned. The Motley Fool owns shares of Liberty Media and Sirius XM Radio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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