SiriusXM Holdings (NASDAQ: SIRI) Launched almost a generation ago with grand plans to revolutionize media.
Fast forward to 2024 and those plans appear to have mostly failed. Native internet alternatives like Spotify eclipses SiriusXM in audience size and market capitalization, and SiriusXM has struggled to break away from the automotive market where it is most popular.
However, SiriusXM just made an unusual move and some investors seem to think it could be a catalyst for a breakout in the stock.
A spin-off and a reverse stock split
On September 9th, Media of freedom completed its spinoff of Liberty SiriusXM Holdings, which is now known as SiriusXM Holdings.
The transaction reduced the number of shares outstanding by approximately 12%, after which the company enacted a 1-for-10 reverse stock split that pushed the stock price out of the penny stock range.
The transaction appears to have breathed new life into SiriusXM and could give it a fresh start. The company’s management will have more flexibility as Liberty Media will take a backseat.
Sirius reiterated its full-year guidance for revenue of $8.75 billion and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.7 billion. It also lowered its free cash flow guidance to $1.0 billion from $1.2 billion to account for expenses related to the spinoff.
In addition, the company declared a quarterly dividend of $0.27, yielding 4.6%, and announced a $1.166 billion share repurchase program.
Reverse stock splits are often a warning sign for investors. Companies often resort to them when their stock prices have fallen so much that they no longer comply with their exchange’s listing rules. The stock merger raises the par value of the stock, which can bring such companies back into compliance and prevent them from being delisted.
That wasn’t exactly the situation for SiriusXM, though. It’s true that its stock has traded below $10 per share for several years, partly as a result of the company issuing more stock to stay afloat during the 2008-2009 financial crisis. However, the company seems much more stable now than the typical reverse stock split.
Sirius after the breakup
Sirius is a solidly profitable company, but it has struggled to grow revenue and audience in recent years. The veteran satellite radio company continues to target a leverage ratio of 3 times adjusted EBITDA and plans to spend its free cash flow on investments, maintain its dividend and pay down debt.
The company ended the second quarter with $9 billion in long-term debt, meaning it is within the range of its target leverage ratio based on its EBITDA forecast of $2.7 billion.
SiriusXM also said it is evaluating the goodwill and intangible assets it inherited from Liberty Media, which could lead to a reduction in the value of the stock in the third quarter. However, that would be a non-cash accounting charge.
Is SiriusXM a good buy?
For dividend and value investors, SiriusXM looks like a good candidate. The stock trades at a price-to-earnings ratio of 7, and its 4.6% yield at the current share price is also attractive.
However, it is reasonable to question how sustainable the company’s business is, which probably explains its low valuation.
Sirius is likely to lose Howard Stern next year when his contract expires, as he is expected to retire. The company also continues to lose market share to rival platforms such as Spotify, and satellite radio seems less relevant as more vehicles are equipped with internet-ready interfaces such as CarPlay.
In the third quarter, Sirius’s revenue fell 3% to $2.18 billion, and total subscribers fell 100,000 sequentially from the second quarter to 33.3 million; its subscriber base was down 806,000 from a year ago.
For the right type of investor, Sirius could be a good choice, especially if the company takes advantage of its low stock price and buys back its shares. However, investors should keep an eye on revenue and subscriber trends to make sure the business is stable. While those risks are minor given the company’s low valuation, they remain the biggest threats to SiriusXM stock.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in Spotify Technology and recommends it. The Motley Fool has a disclosure policy.
After Its Reverse Stock Split, Is SiriusXM Satellite Radio a Good Buy? was originally published by The Motley Fool