Buy Sirius Through Liberty Media, Says Buckingham

• In a report issued Friday, Buckingham Research analyst James Ratcliffe reiterates a Buy rating on Liberty Media Corp LMCA, setting a $48 price target based on a NAV valuation.
• The expert assures that investing in Liberty Media is the best way to get exposure to Sirius XM Holdings Inc. SIRI, which the firm also rates a Buy – with a price target of $4.50.
• Shares of Sirius are slightly up on Friday trading, while shares of Liberty Media are marginally down.

Buckingham recommends Liberty Media to get exposure to Buy-rated Sirius XM due to its 17 percent discount to NAV (compared to Sirius, which trades at market price). It should be noted that the company’s stake in Sirius represents 81 percent of its NAV.

What’s New

September auto sales data shows a consistently solid new car funnel at Sirius. This supports Buckingham’s expectation of 1.95 million subscriber net adds for 2015, above guidance, which calls for 1.8 million net adds.

Another key point in the firm’s thesis is Liberty Media’s market price, which implies negative value for the company’s stake in Braves and its legal battle against Vivendi.

The Thesis

Ratcliffe believes Liberty Media’s stock is attractive due to the potential upside that the underlying Sirius shares provide. Another source for upside comes from the “potential compression in the discount to NAV” (which currently stands at 17 percent, versus the firm’s target of 5 percent).

The experts think both companies will eventually be combined into a single entity. However, this is more of a long-term view, since Liberty has “no pressing need to get access to SIRI's balance sheet capacity.” Since the analysts believe that Liberty’s management would seek a premium in any kind of combination, they remain “skeptical they'd want to start that negotiation from a position of a significant market discount.”

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.