Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Giving Sirius XM Credit Where Credit Is Due

By Rick Munarriz - Updated Apr 6, 2017 at 9:36PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Good fundamentals are rewarded with an upgrade.

It should be fairly obvious to anyone tracking Sirius XM Radio's (Nasdaq: SIRI) perpetually improving fundamentals, but the company isn't the credit risk it used to be.

Shares of the satellite radio provider were trading as much as 6% higher this morning after Moody's upgraded Sirius XM's credit rating.

The more attractive risk profile makes sense. Sirius XM continues to gain subscribers in a cost-effective manner. It's been profitable and cash flow positive for more than a year. It doesn't have any major debt repayment milestones -- or costly satellites to deploy -- in the near term.

Moody's new B2 corporate family rating is not investment grade. Credit rating agencies can be sticklers for that kind of thing, especially for a debt-laden company operating on thin margins in an industry with a history of minefields going off on the terrestrial side.

Sirius XM bulls can learn to live with that. The credit rating upgrade will make it that much cheaper when the time comes to refinance its existing debt.

Cynics will naturally wonder where the credit upgrades were when the company really needed a break two years ago. Sirius XM was on the brink of bankruptcy and had to decide between a pair of Machiavellian offers presented by EchoStar's (Nasdaq: SATS) Charles Ergen and John Malone's Liberty Capital (Nasdaq: LCAPA). It chose Liberty Capital, but only after agreeing to hand over 40% of the company and to pay up a stiff 15% on the money it needed to get through its 2009 debt maturities and content payments.

Today's pop was enough to send the shares to within a tick of its two-year high of $2.42 established this month. Ticker-tape watchers will credit the pop to the Moody's upgrade, but the real stars here are the improving fundamentals that continue to take Sirius XM closer and closer to investment grade.

Where will Sirius XM close by the end of the year? Share your thoughts in the comment box below.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$6.20 (-1.90%) $0.12
EchoStar Corporation Stock Quote
EchoStar Corporation
SATS
$26.61 (-1.81%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
633%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/07/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.