The analyst loving couldn't last forever at Sirius XM Radio
Miller Tabak's David Joyce is downgrading the satellite-radio giant -- from "buy" to "neutral" -- fearing that the stock is already approaching his one-year price target of $1.25 a share.
Until this morning, Wall Street pros had been revising their share-price goals higher. Barrington Research's James Goss bumped his target from $1.25 to $1.50 last week. Maxim Group's John Tinker initiated coverage last month, setting his sights on $1.40.
To Joyce's credit, he was an opportunistic bull during the media company's darkest hour. Shortly after Liberty Capital's
He was certainly right then. Is taking a step back the right approach now?
Joyce is arguing that Sirius is now overvalued. The stock has nearly doubled this year and has appreciated several times over since last year's bottom. He argues that Sirius XM is trading at an enterprise value that's a steep 27 times the $380 million in operating profits he predicts for next year. It's a significantly higher multiple than other subscription-based content models.
Valuation is an issue. Armed with roughly $3 billion in long-term debt and 6.4 billion fully diluted shares outstanding, an enterprise value greater than $10 billion is not for the timid given Sirius XM's revenue, margins, and growth.
However, it's also not fair to simply compare Sirius XM to satellite television heavies DirecTV
Yes, Pandora Music and Apple
The surface is just starting to get scratched. If in five years Sirius XM is a satrad provider reaching out to 23 million to 25 million subscribers paying less than $20 a month for premium radio, today's enterprise value of $10.6 billion would certainly seem frothy. However, until Sirius XM proves that it can't do more than follow its current steady growth trajectory, it's dangerous to bet against it.
Is Sirius XM overvalued? Share your thoughts in the comment box below.
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Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.