Please ensure Javascript is enabled for purposes of website accessibility

Starting to Believe in Sirius XM Again

By Rick Munarriz - Sep 18, 2015 at 7:00PM

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

An analyst gets bullish on the satellite radio provider.

There's a new bull on Sirius XM Radio (SIRI -2.74%). Gabelli & Co. reinitiated coverage of the country's satellite radio monopoly with a buy rating on Friday, and slapped a price target of $4.75 on the stock.

Most of the financial journalists covering the move are framing this as Mario Gabelli's firm initiating coverage, but anyone who's been following Sirius XM knows that Gabelli & Co. has been here before.

It was one of the more prolific firms to provide coverage during the volatile days following the merger of Sirius and XM in 2008 and Liberty Media (FWONA) stepping up in 2009 to provide desperate financing. 

  • Gabelli analyst Brett Harriss downgraded the stock -- from buy to hold -- in late 2010, fearing that the upside was limited at its present valuation. The argument at the time was that Liberty Media presented a better way to invest in Sirius XM's stock.
  • He turned bullish again five months later.
  • He downgraded the stock a year after that, concerned about what would happen after Liberty Media stops buying the stock in the open market after it acquires its majority stake.
  • Gabelli & Co. portfolio manager Chris Marangi appeared on Bloomberg a few months later, waxing optimistic on the stock. Marangi's Gabelli Asset Fund owned 270,000 shares of Liberty Media at the time, so he had more than a bit of money riding on the success of satellite radio. 

Marangi's bullish case for Sirius XM included a successful push outside of the auto market. With folks paying far more for satellite television than satellite radio, he saw great potential in tackling the home market. Three years later, that still hasn't panned out. Sirius XM remains primarily consumed on the open road.

There's nothing wrong with that. We are a nation of drivers, and Sirius XM continues to grow as the platform of choice for premium audio. Sirius XM had a record 28.4 million subscribers at the end of June with another record 23.4 million of them on as self-pay accounts.

Satisfaction isn't a problem. Monthly churn is at a historic low. The beauty of the Sirius XM model is that this is a highly scalable model -- a small uptick in revenue usually results in a much larger spike on the bottom line. Sirius XM has now rattled off 18 consecutive quarters of profitability, according to data from S&P Capital IQ.

Six years ago, downgrades were a matter of believing that Sirius XM wasn't going to make it. That's not even open for debate these days. Downgrades now happen primarily for valuation reasons. If investors aren't buying, there's a good chance that Sirius XM might be. Its board authorized another $2 billion more in stock repurchases last month.

So, sure, it's great to have Gabelli & Co. back, but it's hard to call this an initiation -- at least not without a little hazing to go with it.    

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.
$6.04 (-2.74%) $0.17
Liberty Media Corporation Stock Quote
Liberty Media Corporation

*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
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 05/19/2022.

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.