Pivotal Turns Neutral On Sirius XM, Says Liberty Sirius Is A Better Strategy

After holding a bullish stance on Sirius XM Holdings Inc SIRI since early 2010, Pivotal Research Group is moving to the bench. 

The Analyst

Pivotal's Jeffrey Wlodarczak downgraded Sirius XM from Buy to Hold with an unchanged $7.75 price target.

The Thesis

Sirius XM's stock is now trading at a "fair, but undeniably rich" valuation at 18 times 2018 estimated EBITDA and 22 times 2019 free cash flow, Wlodarczak said in a Tuesday note.

Sirius XM has multiple risks that are not necessarily reflected in its valuation, the analyst said:

• Sirius' advantage over streaming music platforms in talk programming and full-in car integration could lose its appeal.
• Rising interest rates and high consumer debt could result in fewer new and used car sales.
• Possible negative effects from proposed car tariffs.
• The rate of rising subprime auto loan delinquencies.
• The potential for slower share repurchases after the iHeartRadio transaction.
• The potential for slower share repurchases at current valuations.

Investors looking for exposure to Sirius XM should consider Liberty Sirius XM Group LSXMA, Sirius XM's 71-percent majority shareholder, the analyst said. Liberty Sirius historically trades at a discount that has now widened to a record high of 34 percent, or $8 billion, according to Pivotal.

 In the event that Sirius XM is acquired, investors will generate an additional 50-percent return if they own Liberty Sirius XM rather than Sirius XM stock, Wlodarczak said. 

Price Action

Sirius XM Holdings shares were trading down 2.16 percent at $7.48 late in Tuesday's trading session.

Related Links:

Sirius Downgraded By Buckingham, But Analyst Sees Additional Upside In The Satellite Radio Stock

Analyst: Why Choose Between Sirius XM And Liberty SiriusXM When You Can Buy Both?

Photo courtesy of Sirius XM.