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Sirius XM Stock Is Worth More Than $3.80

By Rick Munarriz - Feb 5, 2014 at 5:17PM

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Sirius XM Radio receives an analyst downgrade.

Sirius XM Radio (SIRI -1.21%) is heading lower for the fourth trading day in a row. The trigger this time is a Wunderlich Securities analyst downgrade

Bulls will argue that Wunderlich doesn't always get it right when it comes to the satellite radio provider. They can point to the time that it downgraded shares of Sirius XM four years ago, slapping it with a $1 price target. The analyst came around a few months later, but the following year Wunderlich downgraded the stock again, taking its price target down from $2 to $1.65.

Is Wunderlich analyst Matthew Harrigan's latest downgrade -- taking his rating on the shares from buy to hold and slashing his firm's target price from $4.20 to $3.80 -- another regrettable moment?

Well, Harrigan is concerned about Sirius XM's role in the mobile-connected car of the future. 

"We also came away from the January CES show with a conviction that tech companies and OEMs are now regarding the car as the world's largest mobile device with a vast array of new apps in queue," he writes, as retold at Benzinga.com

Sirius XM has laughed at this knock in the past. Connected cars haven't been the end of satellite radio. In fact, Sirius XM bragged a year ago that buyers of connected vehicles were just as likely to sign up for Sirius XM as those behind the wheel of traditional low-tech cars. 

However, this does then lead us to the problematic conversion rate in Sirius XM's quarterly report yesterday. Buyers of cars with factory-installed Sirius or XM receivers typically become self-paying customers between 44% and 46% of the time after they check out the media platform's free trial. Unfortunately, yesterday we learned that the conversion rate during the last three months of 2013 clocked in at just 42%.

Is this a fluke or the beginning of an unwelcome trend? Sirius XM has been so prolific in the past that it deserves the benefit of the doubt. However, if it doesn't bounce back in its next quarterly report, it's going to suggest that smartphones in smart vehicles is a problem.

Harrigan also feels that Liberty Media (FWONA) isn't going to materially sweeten its bid to buy the minority stake in Sirius XM that it doesn't already own. The exchange ratio it originally offered wasn't much of a premium, and shares of Liberty Media have inched lower since then. The good news for potential investors now is that Sirius XM's stock is trading lower since that time. With the Liberty Media buyout creating a floor for the stock as long as it's still hovering about, this stock dip appears to be a buying opportunity.

Rick Munarriz 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.

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Stocks Mentioned

Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$6.52 (-1.21%) $0.08
Liberty Media Corporation Stock Quote
Liberty Media Corporation
FWONA

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