Sirius XM Stock Looks Attractive At $6

by Trefis Team
+11.66%
Upside
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Trefis
SIRI
Sirius XM Radio
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Sirius XM stock (NASDAQ: SIRI), the satellite radio provider, became vulnerable due to the shelter-in-place orders, which led to fewer subscribers to its platform that’s mainly consumed behind the wheel. Consequently, the company’s stock has lost 11% of its value so far this year, and currently stands at around $6. However, we believe that this media stock could see a strong upside once the Covid-19 fear abates. This is taking into account the company’s operating performance compared to its rivals, strong Q3 results, recent vaccine trial news, and a five-year extension with the iconic morning show host Howard Stern. 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.

While Sirius XM enjoys a 78% new car penetration rate – as the majority of its revenues come from car-installed subscriptions, the company is also looking into growth through other forms of audio entertainment such as music and podcasts. In February, Sirius XM acquired a minority stake in the open audio platform SoundCloud. Sirius also acquired Simplecast, in June, a leading podcast management platform that allows creators to publish and analyze their content. This business synergizes well with Sirius’ ad tech subsidiary, AdsWizz, which is an end-to-end monetization solution for audio content. Then, in July, Sirius XM made an acquisition of podcasting behemoth Stitcher, which will add established podcasts like Freakonomics Radio, Oprah Winfrey’s SuperSoul Sunday, to name a few, to its platform. In total, Sirius’s 2020 acquisitions cost the company $428 million in total. The expectation is that the new podcasting trend will boost the company’s current revenue streams and possibly add new ones.

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 63% 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’s Performance During 2020 Coronavirus

SIRI stock declined from levels of around $7 in mid-February (the pre-crisis peak) to roughly around $5 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 $6, rising by 40% since March 23. However, it is still down 11% from levels of around $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 3,657 currently, rising by 63% since Mar 23. It is also up 13% 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 over $3 in October 2007 (the pre-crisis peak) to roughly 16 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 60 cents in early 2010, rising by 275% 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.

Fundamentals

How Do SIRI 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.

Survival Check

Does SIRI 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.

CONCLUSION

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 the gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-November 2020: Weak Q2 and Q3 results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Despite the recent surge in the number of new Covid-19 cases in the U.S., we expect continued improvement in demand to buoy market expectations. As investors focus their attention on expected 2021 results, we believe Sirius XM’s stock has the potential for strong gains once fears surrounding the Covid outbreak are put to rest.

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