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

After holding a bullish stance on Sirius XM Holdings Inc (NASDAQ: 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 (NASDAQ: 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.