There is now more than one publicly traded flavor of the country's satellite radio monopoly, and one consumer-focused brokerage firm is making a distinction between the different ways to play Sirius XM Radio (SIRI -0.81%).
Telsey Advisory Group analyst Tom Eagen initiated coverage of Sirius XM with a neutral "market perform" rating last week. His price target of $4.59 suggests 10% of upside. However, he also rolled out coverage of Liberty Sirius XM Group (LSXMA -0.74%) with a bullish outperform rating. The stock would have to rise 19% to hit his price objective of $39.52 for that stock.
Investors have different ways to participate in the success -- or root for the failure, if you're short -- of satellite radio. Liberty Media (FWONA) spun off the ownership of baseball's Atlanta Braves and its majority stake in Sirius XM in April. Liberty Media's position in the fast-growing provider of satellite radio had grown to account for the lion's share of the media conglomerate's value. The stake traded at a discount to Sirius XM's stock itself, but it was hard to smoke out investors wanting a cheaper way into satellite radio when it meant they were also buying a parent company with interests in Major League Baseball, concert promoters, and other media companies.
A tale of two investments
Liberty Media's spinoff has been a success. Liberty Sirius XM Group has climbed nearly 19% since it was spun off at $28 in mid-April. Sirius XM's stock has only risen 7% in that time. The performance is narrowing the discount of Liberty Sirius XM Group to Sirius XM, but Telsey's Eagen feels that it's still the smarter way to play the only game in town when it comes to satellite radio.
He's not the only one that feels that way. When Deutsche Bank initiated coverage last month, it also recommended the purchase of the tracking stock instead of a direct purchase of Sirius XM. The Deutsche Bank argument was that Liberty Sirius XM Group was trading at a 14% discount to the more widely traded Sirius XM stock at the time. Discounts don't necessarily narrow over time, but Deutsche Bank felt that it was feasible for Liberty Media to still acquire all of Sirius XM.
Sirius XM continues to hit the right notes as a company. It's consistently posting year-over-year growth in revenue, earnings, and EBITDA. It's also consistently posting quarter-over-quarter growth in accounts. There were nearly 30.1 million subscribers as of the end of March, and we'll get a fresh snapshot on Sirius XM when it reports financial results for the second quarter next week. There are a couple of ways to buy Sirius XM now, but if the news is positive, naturally all of the flavors will move higher.