Please ensure Javascript is enabled for purposes of website accessibility

Sirius XM Is Insatiably Cannibalistic

By Rick Munarriz - Jul 16, 2014 at 11:41AM

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

Sirius XM Holdings Inc. adds another $2 billion to its buyback efforts.

Mom, Sirius XM Holdings (SIRI -2.51%) is gnawing on itself again! 

The satellite radio giant announced Tuesday afternoon that its board is approving the purchase of $2 billion worth of stock. If the authorization sounds familiar, it's because this is the third time that Sirius XM has gone this route. 

It's been 19 months since Sirius XM turned heads by announcing that it would be buying back $2 billion worth of its stock over time. Just 10 months later, its board gave the green light to snap up another $2 billion. The new announcement, made shortly after the market closed Tuesday, brings us up to a whopping $6 billion in planned buybacks. 

Now this doesn't mean that Sirius XM has to buy all of the stock. It's merely an authorization. However, history shows us that it's not just lip service when it comes to Sirius XM. By the time it announced its second buyback in October 2013 it had already eaten its way through $1.6 billion of the original repurchase. This time around, Sirius XM isn't telling us how deep it has gotten into its efforts, but back in late April it did reveal that it had purchased a cumulative tally of $2.3 billion -- out of what was then $4 billion in authorizations -- after taking a $340 million chunk of shares off Liberty Media's hands. 

Liberty Media continues to hold a controlling stake in the satellite radio darling, but as Sirius XM buys back its stock, it has the flexibility to also whittle down Liberty Media's total share count. 

Sirius XM is good for the money. It's making a ton of dough these days. It expects to approach $1.1 billion in free cash flow. It has also borrowed money to assist in its buyout efforts, but everything appears to be under control. Sirius XM's target is to keep total debt at less than four times annual adjusted EBITDA, and as of the end of the first quarter that leverage ratio was clocking in at a modest 2.8. 

The market hasn't necessarily rewarded Sirius XM for eating its own cooking. The stock has risen just 22% in the 19 months since the day before it announced its initial buyback through Tuesday's close. That's not bad, but it's a little more than half of the S&P 500's 40% return in that time. 

This is still something that's important to Sirius XM's ability to move its stock higher in the long run. Sirius XM has printed a lot of shares over the years. Doubling its share count to bring on XM Satellite Radio makes sense, but the 40% preferred share stake it handed to Liberty Media when it was on the brink of bankruptcy was more predatory than payday loans at check-cashing outfits. It was also liberal with stock and option grants to attract and retain talent when its stock price was trading a lot lower than it is today. 

In the end, Sirius XM is doing the right thing. Its fully diluted share count was down to 6.1 billion as of the end of March, and the lower that figure gets, the better its chances of appreciation will be as its growing revenue and profitability gets divided into fewer shares. 

Keep gnawing away at yourself, Sirius XM. Enjoy the buffet, and don't worry about what the market thinks about your table manners.

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.

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.
$6.60 (-2.51%) $0.17

*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 analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

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

Premium Investing Services

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