Barrington Explains Why A Neutral Stance On Sirius XM Was Wrong

Analysts at Barrington felt it necessary for Sirius XM Holdings Inc SIRI investors to move to the sidelines earlier this year amid expectations of a "leveling in the stock price." Fortunately, it isn't too late to be buyers of the stock after missing out on a 20-percent gain since the start of the year.

The Analyst

Barrington Research's James Goss upgraded Sirius XM from Market Perform to Outperform with a new $8 price target (no prior price target).

The Thesis

At the start of 2018, there were legitimate concerns surrounding Sirius' business, especially royalty changes, Goss said in a note. The stock "hurtled substantially higher" by 40 percent, however, and peaked at $7.70 per share before falling back around 12 percent to current levels as several other research firms cut their recommendations on the stock but may be overlooking the company's longer-term story.

Specifically, Sirius should end 2018 with a 5 percent revenue growth rate driven by net subscriber additions of 1.2 million users, the analyst wrote. The subscriber growth comes at a time when the company increased subscriber charges to cover higher royalty rates with minimal blowback from its customer base. This demonstrates consumers see value in the quality of service received which in return boosts investor confidence.

Bottom line, a return to a bullish stance on Sirius' stock is justified after the recent dip as any "cautionary observations" in 2018 are likely overblown as the management team "more than adequately" addressed any concerns.

Price Action

Shares of Sirius XM were trading around $6.84 at time of publication.

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