We came across a bullish thesis on Sirius XM Holdings Inc. (SIRI) on Waterboy’s Substack by Waterboy Investing. In this article, we will summarize the bulls’ thesis on SIRI. SIRI Technologies, Inc. share was trading at $25.60 as of Sept 23rd. SIRI’s trailing and forward P/E were 7.76 and 7 according to Yahoo Finance.
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SiriusXM is a significant player in the audio entertainment market that dominates North America by offering satellite radio and Pandora’s streaming platform, they have reached around 150 million monthly listeners across its platforms.
SiriusXM provides a subscription-based model to people ranging from $10 to $25 where it offers a wide variety of content like music, sports, comedy, news, podcasts, and talk shows while exclusive content like Howard Stern and sports programs appeal to a wide audience. SiriusXM has 33 million subscribers with an average monthly revenue per user (ARPU) of around $15. SiriusXM competes with streaming services like Spotify and Apple Music which one can consider as clear substitutes to their services but despite that, SiriusXM stands out as it offers sports content which is one of the most affordable ways to access it with strong customer satisfaction and engagement outpacing its competitors.
SiriusXM as a company is pretty strong when compared to its plummeted stock price as its business model is highly cash-generative as its management expects that by 2028 the free cashflow will be $1.8 which is a 50% growth from today’s base of $1.2 billion, has a low churn rate of 1.5%, largely due to its popular content offerings and due to its debt being low-cost and well-laddered with its target net debt to EBITDA is in the low 3s.
We expect modest growth for SiriusXM from investments in technology such as 360L and the new satellite launches, as the company has high-quality content, SiriusXM plans to gradually raise the prices of its subscriptions and expects that the number of subscribers who cancel their service will remain low which will support its financial health going forward.
With respect to the valuation of the company we can expect SiriusXM to generate $5.5 billion of FCF by 2028, $1.5 billion in debt repayments, and a combination of $1.5 billion in dividends and $2.5 billion in stock buybacks we can conclude that the company’s recent share price decline offers an attractive entry point for investors looking for a cash-generative legacy business.
Sirius XM Holdings Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held SIRI at the end of the second quarter which was 17 in the previous quarter. While we acknowledge the risk and potential of SIRI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SIRI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.