Looking At The Significance Of Sirius XM’s Latest $2 billion Share Repurchase Program

by Trefis Team
Sirius XM Radio
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Following the stock market carnage last week, when Sirius XM‘s (NASDAQ:SIRI) shares fell almost 10%, it announced the plans to buyback common stock worth $2 billion. [1] Through share repurchases, the satellite radio company is looking to boost returns to investors, who have received paltry performance from other avenues. Sirius XM’s stock has not moved much over the past two years and returns to its shareholders in the form of dividends have been limited. The company has announced dividends only once in its history, paying investors $327 million in cash dividends in 2012.

On the other hand, the company has been generous with its buybacks, approving four share repurchase programs worth an aggregate of $8 billion since 2012. Apart from providing returns to shareholders and encouraging them to stick with the company, share buybacks help create artificial demand in the market by reducing the supply of shares, which subsequently increases their value. Since the announcement of its latest round of share repurchases, Sirius XM’s stock has gone up almost 5%. Another reason for buybacks can be the fact that the management is confident in the company stock’s long term potential and wants to purchase shares at a relatively cheaper price. Our current price estimate for the company at $3.94, is about 5% ahead of the current market price.

See our complete analysis for Sirius XM

Sirius XM has been performing very well over the past five years, increasing its free cash flow at a compound annual growth rate of more than 20%. Still, the company’s stock has remained roughly stable, owing to its concerns with a probable royalty rate hike in the future and the threat of growing competition from other music services such as Pandora (NYSE:P), Spotify, Apple Music and Google Play Music. However, the company has enough cash on hand to compensate for the lack of stock appreciation with its share buybacks. In 2014, Sirius XM generated $1.16 billion in free cash flow, and had over $300 million in cash and investments in the most recent quarter. In 2013 and 2014 combined, the company bought common stock worth close to $4.3 billion.

For the latest round of buybacks, the company plans to utilize its available cash and cash equivalents, future borrowings and future cash flow from operations. These repurchases will include accelerated common stock transactions in the open market and transactions with the satellite radio company’s biggest shareholder, Liberty Media Corp. Sirius XM claims that despite its hefty buybacks, it still retains the capacity to make strategic investments in areas such as programming and R&D, that are likely to play an instrumental role in its future growth. [1] Given its ample liquidity and profitability, Sirius can indeed fund both strategic initiatives and these shareholder-friendly buybacks.

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  1. Sirius XM Adds A Further $2 billion To Stock Repurchase Program, Sirius XM, Aug 26 2015 [] []
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