Cyclical Headwinds Priced In, But Sirius XM May Face New Risks, Says Morgan Stanley Analyst

Morgan Stanley analyst Benjamin Swinburne maintains Sirius XM Holdings Inc SIRI with an Underweight rating, lowering the price target from $5.4 to $4.4.
The re-rating reflects SiriusXM's relatively high exposure to rising cyclical headwinds in an April 13 note titled "Sirius XM Radio Inc. & Liberty SiriusXM: Cyclical Risks May Be Priced In, But Are Secular Risks Emerging?"
These factors led him to see risk to self-pay net adds estimates and SIRI's premium multiple to the broader Cable and Satellite group.
Today, he thinks that those cyclical headwinds look largely priced in.
The analyst notes that this year, auto sales will likely begin recovering toward a more normalized level. The advertising market appears to have bottomed in the U.S. in December or January.
Finally, he observes that SIRI shares have de-rated from ~13x EV/fwd. EBITDA to ~9.5x today.
However, he sees new risks emerging beyond the cycle and suggests that a re-rating backup is unlikely, pending more robust operating performance.
Given his expectation of flattish YoY EBITDA and declining FCF in FY23, a re-rating is likely for shares to outperform.
He sees three potential indicators of rising competitive pressure, including falling free-to-pay conversion rates, lower ARPU growth, and streaming-only customer losses.
Price Action: SIRI shares traded higher by 1.63% at $4.045 on the last check Thursday.

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