Sirius XM hit a 12-year low this week. It’s time to pump up the volume.
The major market indices may have hit fresh all-time highs this week, but Sirius XM Holdings (SIRI 3.96%) investors weren’t invited to the party: Shares of the satellite radio provider hit a 12-year low this week.
There’s no shortage of explanations for the former battleground stock losing the war on Wall Street. Growth has slowed to a crawl. Its subscriber base may have also plateaued last year.
Making matters worse, the conversion of the Liberty Sirius XM Group tracking shares to the more widely traded common stock is a long-term winning move but a drag on near-term performance. Liberty Sirius XM Group investors selling their formerly discounted shares after the conversion, and a 1-for-10 reverse stock split related to the transaction, have weighed on Sirius XM this month.
It may be brazen to call Monday’s low the bottom, but let’s go over a few reasons why Sirius XM can recover this autumn.
1. This week’s Fed move matters
The Federal Reserve lowering its target for federal funds rate by 50 basis points on Wednesday made headlines. The consequences vary on a company-by-company basis, but Sirius XM is shaping up to be a major beneficiary.
Sirius XM’s monthly subscriptions are reasonable, and most new cars already come with factory-installed satellite receivers. Borrowing costs moving lower may not seem to have much of an impact on the business, but let’s talk about the auto market. Sirius XM is primarily consumed in cars, and that’s a big-ticket purchase that usually requires financing.
Retention remains high for the platform despite the year-to-date decline in total subscribers. Its monthly churn rate of 1.5% is at the low end of its historical range. The problem here is attracting new subscribers to replace the consistently steady trickle of cancellations. A boost is new and used car sales can change that dynamic, and lower rates should help increase turnover in the auto market.
Image source: Getty Images.
2. Let’s talk politics
It’s election season, and campaign spending on ads to woo undecided voters will start to heat up. For example, Sinclair announced on Thursday that it expects stronger-than-expected political revenues for the current quarter. The operator of local TV stations and ad-supported specialty digital channels is now targeting $140 million to $145 million in political advertising revenue for the third quarter, up from its earlier forecast range of $113 million to $128 million. It’s an 18% increase.
Sirius XM’s business model relies primarily on monthly subscription premiums, but 20% of its revenue comes from ads it sells on its ad-supported channels. With 33 million accounts commanding attractive demographic profiles — and unlikely to be spending time consuming traditional ad-supported media — the company should be a major beneficiary of the close political races heading into the early November elections.
3. The stock is just flat-out cheap
Shares of Sirius XM have plummeted 56% in 2024 through Thursday’s close. It’s one of just four large-cap stocks to have coughed up more than of their value. The business is going through some challenges, but it hasn’t deteriorated that badly.
Sirius XM is now trading for just 7 times trailing earnings. Its yield has ballooned up to an all-time high of 4.4%. Analysts see a return to growth on both ends of the income statement next year.
The worries about the long-term sustainability of satellite radio are real, but there’s value in its engaged audience and sticky content. Sirius XM remains a sound media stock trading at a ridiculous price.
Fall is here. It doesn’t mean that Sirius XM itself has to keep falling.
Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.