This is shaping up to be another winning year for Sirius XM Holdings (SIRI -1.05%) investors. Shares of the satellite radio provider are trading 21% higher in 2019, and while that lags the market's headier 26% gain this year, it does leave Sirius XM highly likely to post its 11th consecutive year of positive returns. What will 2020 bring?
There are plenty of headwinds and tailwinds swirling about that will play into Sirius XM's performance in the year ahead, but Wall Street's consensus is generally positive. A couple of Wall Street pros feel that the stock could go as high as $8 in 2020, a 16% advance if things go according to plan.
Pieces of eight
The last of the analysts to set a Street-high price target of $8 on Sirius XM was Steven Cahall at Wells Fargo back in September. He remains bullish on the media giant given its steady fixed costs, low churn rate, and gradually improving average revenue per user.
There's a lot to like in Sirius XM. This isn't the deficit-riddled start-up on the brink of bankruptcy that it was a little more than a decade ago. Sirius XM has been consistently profitable, and it expects to generate $1.625 billion in free cash flow this year. Organic growth has slowed, but Sirius XM keeps posting sequential subscriber growth. There were 34.6 million total subscribers on its platform by the end of September.
Closing on the acquisition of Pandora earlier this year has propped up revenue growth, but that should even out come February when we lap the deal. In short, Sirius XM should return to single-digit growth, though things could heat up organically if the company is able to cross-sell its Sirius and Pandora offerings more effectively.
The one downside to the Pandora deal is that it has sandbagged Sirius XM's overall profitability in 2019. Sirius XM is expected to return to bottom-line growth next year. At the $8 price target, Sirius XM would be valued at 32 times the $0.25 a share that analysts see the satellite radio pioneer earning in 2020. The multiple drops to 26 if we look out to Wall Street's profit forecast for 2021.
Sirius XM has historically topped analyst estimates, routinely boosting its full-year guidance in most quarters. However, it has missed Wall Street profit projections in two of the past three quarters since the closing of the Pandora transaction.
The biggest headwind for Sirius XM is the recent slide in new auto sales, but the silver lining there is that the number of cars with factory-installed satellite receivers continues to grow. As long as Sirius XM's subscriber count keeps inching higher, investors will overlook auto ownership trends and the growing popularity of connected vehicles that can stream smartphone apps in lieu of traditional or satellite radio.
Sirius XM also has a dividend that it has routinely boosted by 10% a year since initiating a payout policy three years ago. The stock's 0.7% yield isn't going to be a dinner bell to dividend investors, but it's another factor that has turned this speculative stock into a steady winner. All bets will naturally be off the table if the economy starts to sputter, but for now, Sirius XM stretching its winning streak to an even dozen years and hitting the modest target of $8 is highly realistic.