There is a 40% upside potential from a recovery in Sirius XM stock (NASDAQ: SIRI) from $5.13 currently to its pre-crisis levels. Sirius XM’s stock traded at a pre-Covid high of $7.31 in February and is currently 30% below this peak level. However, SIRI stock has gained 14% from the low of $4.50 seen in March 2020 (compared t0 a 47% recovery for the S&P 500). In the recent Q2, Sirius’ Subscriptions grew 3% year-over-year and it generated 84% of its revenues from subscriptions (the rest coming from advertising), suggesting that the company is uniquely positioned among radio operators to survive a recession. In fact, the satellite radio company has also found ways of diversifying and boosting its growth through synergistic acquisitions into music and podcast management (SoundCloud, Simplecast, Stitcher) for long-term growth. The company’s solid subscription-advertising mix could help SiriusXM weather the current coronavirus situation better than most other media companies. Our conclusion is based on our detailed comparison of Sirius XM’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.
2020 Coronavirus Crisis
Timeline of 2020 Crisis So Far:
- 12/12/2019: Coronavirus cases first reported in China
- 1/31/2020: WHO declares a global health emergency.
- 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
- 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid a Saudi-led price war
- Since 3/24/2020: S&P 500 recovers 49% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
Sirius XM Holdings Performance During 2020 Coronavirus
SIRI’s stock declined from levels of around $7 in mid-February (the pre-crisis peak) to roughly around $4.50 as of March 23 (as the markets bottomed out) – implying that the stock lost as much as 38% of its value from its approximate pre-crisis peak. It then rallied to levels of over $5, rising by 14% since March 23. However, it is still down 28% from levels of over $7 seen in early January.
S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis
The S&P 500 index declined from levels of around 3,386 in mid-Feb (pre-crisis peak) to levels of around 2,237 as of Mar 23 (as the markets bottomed out), implying the index lost 34% of its value from its approximate pre-crisis peak. It then rallied to levels of about 3,281 currently, rising by 47% since Mar 23. It is also up 2% from levels of 3,231 seen in early January.
2007-08 Financial Crisis
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)
Sirius XM Stock Performance Over 2007-08 Financial Crisis
SIRI stock witnessed something far worse during the 2008 downturn. SIRI’s stock declined from levels of around $3 in October 2007 (the pre-crisis peak) to roughly 15 cents in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 95% of its value from its approximate pre-crisis peak. However, SIRI’s stock recovered post the 2008 crisis, to levels of about 57 cents in early 2010, rising by 280% between March 2009 and January 2010.
S&P 500 Performance Over The 2007-08 Financial Crisis
S&P 500 Index fell 51% from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124 – rising by about 48% between March 2009 and January 2010.
How Do Sirius XM’s Fundamentals Look In Recent Years?
Sirius XM’s revenues grew 56% from $5.0 Bil in 2016 to $7.8 Bil in 2019. It should be noted that a 35% year-over-year revenue growth in 2019 was largely due to the acquisition of Pandora’s business. In addition, earnings growth, on a per-share basis, was higher by 33% between 2016 and 2019.
Does Sirius XM Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?
Sirius XM’s total debt increased from $5.8 billion in 2016 to $7.8 billion in 2019, while its total cash decreased from $214 million to $106 million over the same period. The company also generates close to $2.0 billion in cash from its operations and has $1.75 billion in a revolving credit facility. It appears to be in a good position to weather the crisis.
Phases of Covid-19 crisis:
- Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival anxiety
- May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
- July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations
Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. As investors focus their attention on expected 2021 results, we believe Sirius XM Holdings stock has the potential for strong gains once fears surrounding the Covid outbreak are put to rest.
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