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On Wednesday, JPMorgan resumed coverage of Sirius XM Radio (NASDAQ:SIRI), assigning an Underweight rating to the company's stock with a price target of $20.00, set for December 2025. This comes after a period where the firm had not rated the stock.
The analyst cited the acquisition of Liberty Sirius as a positive development, noting the potential for improved trading dynamics and the possibility of inclusion in the S&P 400 index, alongside a 12% reduction in share count. However, the acquisition has also led to increased leverage, which is expected to affect share buybacks.
The financial institution acknowledges the benefits of the recent Liberty Sirius acquisition but anticipates a pause in share repurchases until 2027 as Sirius XM works towards reducing its leverage to the target range of low- to mid-3x. The analyst expressed concerns about Sirius XM's long-term growth prospects, highlighting uncertainties in sustainable subscriber growth and the company's ability to appeal to a broader demographic.
The report also points out potential challenges, such as the risk of average revenue per user (ARPU) dilution due to a shift in product mix and the introduction of more aggressive pricing strategies aimed at increasing trial subscriptions. These factors, coupled with a forecast of lower EBITDA growth, higher capital expenditures, and a halt in buybacks, are expected to impact investor sentiment toward Sirius XM.
As part of the analysis, JPMorgan has included Sirius XM on its US Equity Analyst Focus List as a Short Idea. The $20 price target for December 2025 is based on a discounted cash flow (DCF) analysis, which assumes a weighted average cost of capital (WACC) of 10% and a perpetual growth rate of -1.0%. This valuation implies a 6.1x 2026 enterprise value to EBITDA (EV/EBITDA) multiple and 4.6x 2026E free cash flow per share, compared to the current 6.7x and 6.5x 2025E multiples.
In other recent news, Sirius XM Radio has seen significant developments, including a merger with a Liberty Media Corporation subsidiary and various analyst adjustments to the company's stock price targets. Benchmark reduced its price target for Sirius XM to $43.00, maintaining a Buy rating, while Citi increased its target to $21.00 due to the Liberty transaction and higher capital expenditures.
Morgan Stanley resumed coverage with an Underweight rating, suggesting potential downside, whereas Pivotal Research maintained a Buy rating, emphasizing the company's robust cash flow capabilities.
Rosenblatt Securities, adjusting for the merger and a 1/10 reverse stock split, revised its price target from $3.40 to $28.00, maintaining a Neutral rating. Evercore ISI also increased its price target significantly to $32.50.
Sirius XM's Q2 2024 earnings report revealed an 8% sequential increase in adjusted EBITDA, a year-over-year improvement in margins, and a 6% increase in free cash flow from the previous year, despite a decline in subscriber and advertising revenue.
To foster growth, the company has implemented several strategic initiatives, including a revamped streaming experience, a new in-vehicle pricing model, and the expansion of 360L installation rates, as well as plans to open a European tech hub.
InvestingPro Insights
Recent InvestingPro data provides additional context to JPMorgan's analysis of Sirius XM Radio (NASDAQ:SIRI). The company's P/E ratio stands at 6.85, with an adjusted P/E ratio of 5.93 for the last twelve months as of Q2 2024. This low valuation relative to earnings aligns with one of the InvestingPro Tips, which notes that SIRI is "Trading at a low P/E ratio relative to near-term earnings growth."
The company's revenue for the last twelve months as of Q2 2024 was $8,899 million, with a revenue growth of -0.65% over the same period. This tepid growth may contribute to JPMorgan's concerns about Sirius XM's long-term growth prospects. However, it's worth noting that despite these challenges, SIRI maintains a strong dividend yield of 4.54% and has maintained dividend payments for 9 consecutive years, according to InvestingPro Tips.
InvestingPro Tips also highlight that SIRI is trading near its 52-week low, with the price having fallen significantly over the last three months. This is reflected in the 3-month price total return of -31.14%. While this aligns with JPMorgan's cautious stance, it's important to note that analysts still predict the company will be profitable this year.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for SIRI, providing a deeper understanding of the company's financial health and market position.
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