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Sirius XM Looks Like a Good Long-Term Investment

June 23, 2014 | About:
kcpl

kcpl

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Sirius XM (SIRI) is seeing good growth in the business as its satellite radios are finding good traction in cars. The company's performance looks set to improve in the future as the company is making some good moves to sustain its growth.

Solid moves

Sirius is deploying its next generation technology 2.0 satellite radios in various new vehicles with improved functionality that will not only enhance its efficiency, but also help OEMs to reduce their cost related to implementation of the service and reduced subsidies to a great extent. As it moves forward, the company strategically intends to deliver a better experience to its OEM customers with the deployment of its connected vehicle business, which should supplement its growth in the coming years. For example, the company recently purchased Agero, which is expected to drive sales in the connected vehicle business for the company.

Furthermore, the company has increased its penetration in the market as it builds a healthy relationship with Nissan to fix the satellite radio in all of its models through 2018. Sirius has another two giants on its client list such as Honda and Toyota. These will further increase penetration of satellite radio in the ongoing manufacturing of cars.

The company is moving aggressively with its key strategic initiatives such as offering customers free abbreviated trials and exposing them to its offerings that best suit to a changing environment at various service stations and dealers. These initiatives are targeted heavily to attract used car market dealers and owners.

More positives

Sirius has also expanded its CV platforms that will certainly gain credibility in OEM services, as it will create a worldwide connected car platform, thus fueling the interest of OEMs. The company is trying to deliver better results through its CV platform in the current fiscal that will enhance its relationship with key Asian and European OEMs. This should help it tap various opportunities in other regions.

On top of it, Sirius XM has recently launched NBA Radio and is planning to re-launch one of its PGA Tour radio channels, with top pros like Ben Crenshaw. Besides, the company has great programming across sports, official talks, and with wall to wall coverage on NFL radio. In addition, the company is trying to get superstars like Katie Perry, Eminem, Lady Gaga, Pearl Jam, Mike Tyson, and the cast of Downtown Abbey for programming.

Valuation

Sirius currently trades at a trailing P/E of 58.58 and a forward P/E of 27.33. Its levered free cash flow stands at $870.69 million and the company expects to increase it aggressively in the current fiscal 2014. Its current return on equity is approximately 10.76%. However, the company has total debt of $3.60 billion, with total debt/equity ratio of 126.65, which is not so bad for a company which is at the growing stage.

These fundamentals definitely reflect positive signs and provide investors with ample reasons to invest in the company. Also, analysts have expected a CAGR of 19.77% for earnings growth, higher than the industry’s CAGR of 16.22% for the next five years. All these factors point toward the fact that Sirius is all set to profit from growth in satellite radio and investors should definitely consider an investment in the stock.


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Comments

irie267
Irie267 - 4 weeks ago

In its current Price/Value state, I would never consider buying SIRI. My first introduction to the company was earlier this year, when a purchase of a VW came with 6 months of free radio. Initially, I liked it, but as time went on, its preference faded fairly quickly. I asked myself: is this something I would pay $18 a month for? The answer, for me at least, is a resounding "No". Although there are no commercials, it is just as repetitive in its song choices as an AM/FM radio, it's another monthly bill (i.e. costs money), and it doesn't work under bridges or other obstructions. My car came bluetooth, which is what I assume all newer vehicles are being equipped with. I just stream Pandora via bluetooth; it doesnt cost anything (unless you want it to with an optional subscription), you can create the exact station you want (instead of using pre-existing channels that are just approximations), and it doesn't cut out when under bridges or other obstructions. It provides roughly the exact same output as SIRI, but it doesn't cost anything. Additionally, using Pandora barely scratches the data plan on my cellphone carrier, so there are no incremental costs there. There is nothing that SIRI provides (that I can tell aside from being commercial-free) that can't be substituted for free with Pandora or another music/media app and a bluetooth connection that most newer vehicles come with anyway. Just my $.02.

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