Could Sirius be a Golden Stock?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sirius XM Radio (NASDAQ: SIRI) is by far the biggest company in the radio broadcasting industry, and a couple of weeks ago it broadcast Whitney Houston’s funeral live on its Heart & Soul channel. I believe that SiriusXM has its finger on the community’s pulse, and recent events show that this stock is definitely one to consider, in my opinion.
One of this company’s greatest strengths, in my view, is the fact that satellite radio is available for over 800 devices. This means that SiriusXM has covered its bases among new technological tools; no matter where consumer trends in portable devices may lead, it looks to me like SiriusXM is prepared to adapt, since it has already spread to a significant variety of systems.
However, SiriusXM is not without its rivals. Pandora’s (NYSE: P) share price is currently much higher than that of SiriusXM, with a closing price of $13.90 today compared to SiriusXM’s $2.31. That being said, the latter has a market cap of $8.67 billion while the former stands at $2.24 billion. If SiriusXM’s share price rises, the company will leave Pandora in the dust. While Pandora and SiriusXM are both popular alternatives to traditional radio, Sirius keeps its broadcasting free of commercial advertising. I believe that this will make a lot of difference in the long run. However, the money that Pandora receives from advertising helps to boost the company’s financial basis. Furthermore, Pandora’s peaks have been sinking lower and lower since last year. I don’t think this is a good sign for what the future will hold, because it looks like there was a lot of hype and interest in the beginning, but now that is starting to wane. One reason why I don’t think Pandora or another competitor can ever gain the upper hand is because of Sirius’s deals with most major automotive manufacturers. They include a free trial of SiriusXM in cars they produce, and then invite the owner to subscribe to the service.
Pandora has also recently announced sixteen deals with car makers, but its audience will still be much more limited initially, and SiriusXM has been gaining ground in airline deals, including AirTran Airways, JetBlue Airways, United Airlines, and Air Canada. Furthermore, Pandora’s services are available on over 400 devices, which is a decent number but only half of what SiriusXM boasts. If both companies expand their device availability as new electronics come out, it seems to me that SiriusXM will win, since it already has a head start. At the same time, Pandora’s app ranks second on the most installed apps for Google TV list, just last month, which could be the beginning of a positive trend for the company. Pandora’s stock value is not likely to decrease a lot, in my opinion, but I also expect SiriusXM to be the better payout in the end, especially for long position investors. With the economy floating back up, more people will probably be willing to invest in a higher quality service like SiriusXM, which will boost the company’s revenue significantly.
Another direct competitor of SiriusXM, Cumulus Media Inc. (NASDAQ: CMLS), has hardly been in the news at all, so investors might be wondering if the company is even still around. I can tell you that it is alive and well, but I believe its lack of newsworthy endeavours lately will mean a loss of interest among the general public. That being said, the company has been moving into new markets, but only on a small scale. SiriusXM’s more aggressive expansion will very likely overshadow any new ground gained by Cumulus, in my opinion. SiriusXM offers a lot of interesting shows, including the upcoming appearance by world-famous composer Andrew Lloyd Webber on the air. For current and potential subscribers, I expect that the variety of channels offered by SiriusXM will keep it competitive, since it is already relatively well established, so people know that they can expect high quality. This means that SiriusXM might be able to arrange celebrity talks more easily than some of its competitors, and it also has the cash to send people down to cover NASCAR’s Daytona 500 competition. To me, these are all signs that the company has solidified its financial position.
All this aside, the big news is that SiriusXM could be bought out in the near future by Liberty Media (NASDAQ: STRZA). If this rumor turns out to be true and the deal goes ahead, shareholders in SiriusXM could potentially make a lot of money. SiriusXM’s shares are up a total of 24.2% this year and Liberty is up 15.4%, so both these stocks have been doing well. With an EPS of $12.49 at the time of writing and a closing price of $ 89.66, Liberty is closer to its 50-day high than its low. This stock has been on the rise since October, and it shows no sign of stopping. Buying out SiriusXM would only push its value higher, in my opinion. Thanks largely to an 8% increase in subscriptions to its Starz premium cable TV business, Liberty’s fourth quarter revenue rose 96% for 2011 over the previous year. The company’s only apparent hardship was the fact that its baseball team, the Atlanta Braves, ended the season heavily in the red. Fortunately for investors, this was only a minor setback for a company of this size, and Liberty still seems confident enough in its money management to look into buying SiriusXM.
I think this would be a smart move for both Liberty and SiriusXM. Since they are both strong stocks, they will have a firm foundation to build on as a single company. At the same time, investors might expect to see a brief dip in value while they shuffle around their structures and people, but once things settle down I believe combined company could become stock market gold.
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