Analysts Are All Over the Place on Sirius XM Stock

Last week was a busy one for Sirius XM Holdings (NASDAQ: SIRI) investors tracking Wall Street moves. The week kicked off with Barclays analyst Kannan Venkateshwar downgrading the stock and the stock of its controlling stakeholder, Liberty SiriusXM (NASDAQ: LSXMA). Two days later it was James Goss at Barrington upgrading Sirius XM stock.

Along the way we also had J.P. Morgan’s Sebastiano Petti boost his price target on Sirius XM, even though he maintains his bearish stance on the investment. There’s never a dull moment when it comes to Sirius XM, one of the market’s biggest winners since bottoming out nine years ago.

Image source: Sirius XM Radio.

Going down

Venkateshwar at Barclays is downgrading Sirius XM on fears that the stock may be too mature to warrant its current valuation. He sees growth slowing, and the opportunity to further widen the company’s margins more challenging. Even something as basic as buying back stock — something that Sirius XM has done aggressively in recent years to enhance profitability on a per-share basis — will be more difficult in the future.

Venkateshwar also sees competitive pressures intensifying, though naturally not in the field of satellite radio, where the 2008 combination of Sirius and XM cemented a satellite radio monopoly. Between streaming apps, connected cars, and tech giants getting ambitious about promoting their streaming music offerings, it may be harder to justify Sirius XM’s escalating subscription rates and music royalty fees (which it passes on to subscribers).

An interesting wrinkle in Venkateshwar lowering his rating on Sirius XM from equal weight to underweight is that he’s also downgrading shares of Liberty SiriusXM. Most of the analysts who have downgraded SiriusXM in recent months — a bad move, since the stock was hitting 12-year highs just two weeks ago — have done so while still waxing bullish on Liberty SiriusXM. Liberty SiriusXM trades at a discount to its controlling stake in Sirius XM Radio. Venkateshwar knocking down both investments — he’s lowering his rating on Liberty SiriusXM from overweight to equal weight — is a call to head to the sidelines on even value investors’ way to play the success of satellite radio.

Rise above

Barrington’s Goss upgrade came shortly after Venkateshwar’s downgrade. Goss feels that the long-term story is still intact, and the stock’s recent slide after hitting multiyear highs in mid-June presents a buying opportunity. He’s boosting his rating to outperform from market perform, and his $8 price target suggests 18% of upside from present levels.

JPMorgan’s Petti is the one boosting his price target on Sirius XM, though going from $5 to $6 leaves his goal still below where the stock is presently perched. He is sticking to his underweight rating. He has valuation concerns — like Venkateshwar — with Sirius XM at this mature phase of its life cycle. But he’s not down on the company’s attempt to explore investing opportunities in similar platforms, as a way to offset the moderating subscriber-growth trend.

It’s true that Sirius XM isn’t a speed demon; revenue grew at a modest 6% clip in its latest quarter. However, the stock has been posting slow yet steady top-line growth for years. It’s hard to bet against a company that’s steadily growing and consistently profitable. And with Wall Street pros moving in all directions recently, this time they can’t all be right.

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