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This Week in Sirius XM Radio

By Rick Munarriz – Mar 15, 2014 at 11:15AM

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There's never a dull week with Sirius XM Radio.

Things never get dull for the country's lone satellite-radio provider. Shares of Sirius XM Radio (SIRI 0.25%) closed at $3.44, down 2% on the week. The media darling's slide was in line with Nasdaq's 2.1% drop on the week.

There was more going on beyond the share-price gyrations, though. Liberty Media (FWONA) abandoned plans to take over all of Sirius XM's stock, while Sirius reiterated its guidance and also received a bullish analyst note that pegged a $5 price target on the shares. 

Let's take a closer look.

There won't be Liberty for all
John Malone's Liberty Media announced on Thursday after the market close that it's withdrawing its plans to acquire the minority stake in Sirius XM that it doesn't currently own. The eclectic media conglomerate will instead reclassify its stock to create two new tracking stock groups.

The news wasn't necessarily a shock. The offer didn't represent much of a premium at the time, and it's not as if Liberty Media could've sweetened the offer without valuing Sirius XM at billions more than it was willing to offer. Only investors outside of Liberty Media were going to be able to vote, and anyone with an Internet connection could've seen that the vibe among retail investors was that they weren't going to vote in favor of the deal.

Both stocks rose Friday on the news. Sirius XM climbed 2% to make up half of the loss that it had accumulated earlier in the week, and Liberty Media shares popped 7% on Friday. Then again, Liberty Media's increase could be tied to the decision to still split Liberty Media into two entities.

Still on course
Sirius XM took advantage of Liberty Media's withdrawal to announce that it will resume its share buyback initiatives.

The satellite-radio star also reiterated its guidance for all of 2014:

  • It still expects to close out the year with 1.25 million net subscriber additions. This is less than its gains in previous years, but at least it's positive after a sequential dip during the holiday quarter. Self-pay subscribers did climb nicely during the fourth quarter.
  • Sirius XM sees revenue clocking in above $4 billion and adjusted EBITDA of roughly $1.38 billion.
  • Free cash flow should approach $1.1 billion.

Reiterating guidance is typically a non-news event, but it's important for Sirius XM to remind investors of its massive free cash flow generation now that it's a swinging single again.

Moving on up
Sirius XM wasn't the only one to take advantage of Liberty Media's retreat to sing its praises. Bank of America Merrill Lynch reinstated coverage of Sirius XM with a bullish "buy" rating and an even more bullish $5 price target.

The upside is no longer capped by the limits of being part of Liberty Media's collection of media assets. The same can also be naturally said about the downside, but Sirius XM has mad the most of that volatility over the past five years years to deliver market-thumping returns. 

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Liberty Media and Sirius XM Radio. 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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