Recommendation to Sell Sirius XM Holdings Amidst Growth and Valuation Concerns

Analyst Steven Cahall of Wells Fargo maintained a Sell rating on Sirius XM Holdings (SIRI – Research Report), reducing the price target to $3.00.

Steven Cahall has given his Sell rating due to a combination of factors affecting Sirius XM Holdings. One of the primary concerns is the anticipated difficulty in achieving subscriber growth for both satellite and streaming services in the year 2024. Despite efforts to revamp streaming services and a slight year-over-year growth, the increased competition in audio services and the expansion of in-car infotainment systems, such as Android Auto and Apple Carplay, could impede the conversion of trial users to full subscribers. This scenario presents a potential obstacle in the company’s ability to grow its subscriber base, revenues, EBITDA, and Free Cash Flow (FCF) in the current fiscal year.
Additionally, Cahall suggests that the valuation of Sirius XM Holdings could see further downside. Historically, the company traded at a multiple of 10 to 11 times forward EV/EBITDA, but he predicts a shift towards a lower multiple in line with Media & Cable peers, which are currently trading at 6 to 8 times due to similar growth and leverage profiles. The upcoming merger with LSXM, expected to close in the summer, adds to the downside risk by increasing leverage and postponing potential buybacks until late 2025 or early 2026. The anticipated higher leverage and capital expenditures, combined with a lack of buyback activity, further contribute to the potential for a lower valuation multiple.

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Sirius XM Holdings (SIRI) Company Description:

New York-based Sirius XM Holdings, Inc. is a radio company, which provides satellite radio services on a subscription fee basis. The company offers music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services. Its brand channels include SiriusXM Traffic, SiriusXM Travel Link, NavTraffic, NavWeather, SiriusXM Aviation and SiriusXM Marine.