Three potential factors contributing to a potential resurgence of Sirius XM's stock value in 2025.
It's been a tough year for Sirius XM Holdings (SIRI 12.15%) investors. The shares of this satellite radio operator have halved in value this year, making it one of the worst mid-cap investments of 2024.
The satellite radio monopoly in the U.S. has faced numerous setbacks in 2024. Its subscriber base is dwindling, and the conversion of a tracking stock and subsequent reverse split didn't go as planned. However, improvements are expected in the future. Let's explore why one of this year's major laggards could potentially lead the market in 2025.
1. The stock is affordable
Despite a bullish market sending valuation multiples skyward for most stocks in 2024, let's delve into the bright side of Sirius XM's downward trend this year.
Sirius XM remains a profitable enterprise. It anticipates generating $2.7 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) on $8.675 billion this year, with another year of 10-figure free cash flow expected.
Sirius XM is confronting issues in attracting new listeners. Nevertheless, value investors should pay attention to this fact: Sirius XM is undervalued. Analyst estimates are sliding, but the stock is currently trading at only nine times forward earnings. Income investors can benefit from a 3.9% yield from a company that has increased its dividend payout for eight consecutive years.
While some stocks with low profit multiples may be value traps, Sirius XM has demonstrated resilience over the years. It has 33.2 million subscribers, and its audience is more loyal to the platform than you might think. Monthly churn is near a historical low at 1.6%. The balance sheet is improving, and the company has been actively repurchasing its stock for over a decade. It's a rare discount waiting to be taken advantage of once value stocks rebound.
2. Sirius XM can adapt to political changes
Sirius XM was in a strong position to succeed, regardless of who emerged victorious in the U.S. presidential election last week. If Harris had won, Sirius XM would have capitalized on Harris' plans to expand the child tax credit, forgive more student loan debt, and introduce a substantial tax break for first-time homebuyers. These measures would have provided more disposable income to younger adults, who Sirius XM needs to appeal to in order to grow again. Expanding the middle class also widens Sirius XM's potential market.
Under President Trump's proposals, Sirius XM would still thrive. Trump's plan to reduce corporate tax rates would boost after-tax earnings. With Harris aiming to raise the corporate buyback tax from 1% to 4%, Trump's election means that one of the stock market's most active stock buyers will continue to buy. Sirius XM has decreased its outstanding shares by nearly 45% over the past 12 years. Trump's proposals include tax breaks for groups like tip earners, family caregivers, and auto loan interest payers. Anything that aids consumers, specifically car owners, should make it easier for Sirius XM to reverse its subscriber losses in 2025.
3. Warren Buffett is taking a serious interest in Sirius
Sirius XM is among the numerous investments in Berkshire Hathaway's (BRK.A 1.37%) (BRK.B 0.86%) stock portfolio. He owned shares of the satellite radio provider as well as the Liberty Sirius XM Group tracking shares before its conversion in September.
When Sirius XM struggled following the tracking share transaction and the unpopular 1-for-10 reverse split, Buffett bought on the dip. Berkshire Hathaway increased its position last month and now owns approximately a third of Sirius XM's shares outstanding.
The media company may not be perfect, but it's not as weak as it was at the start of this year. With an attractive valuation, political advantages, and a renowned investor on its side, Sirius XM could be the ultimate turnaround stock of 2025.
- Given the current market conditions, investing in Sirius XM's undervalued shares could be an appealing finance opportunity, considering the company's strong earnings and dividend payout history.
- Sirius XM's resilience and potential for growth, backed by strong political initiatives and Warren Buffett's substantial investment, make it an attractive option for those looking to diversify their money in the finance sector.
