Sirius XM Holdings Inc. (SIRI, Financial) rewarded shareholders with healthy returns in 2016, and the stock has been displaying strong performance this year as well. It is up nearly 22% year to date and looks like it will continue moving upward.
Warren Buffett initiated a position in Sirius XM last year when it was trading below $5 per share. Although the stock was off to a great start this year, it took a hard hit in April after projecting light guidance for the coming quarter. Sirius’ stock price plunged to $4.73 per share, down from nearly $5.21 per share.
Accordingly, Buffett acquired more shares of Sirius XM during the first quarter and currently owns 172.3 million shares, up from 166.6 million shares last year.
On the other hand, Sirius XM’s subscribers continue growing at a healthy rate. The satellite radio company ended the first quarter with approximately 31.5 million subscribers. Moreover, it expects to add more than 1.3 million subscribers this year. Because auto manufacturers are struggling to grow their sales this year, that figure looks exciting.
Apart from this, Sirius XM is now progressively generating cash, an important thing that should appeal to growth going forward. The company also comprises a robust free cash flow and expects to produce nearly $1.5 billion in free cash flow this year. It is smartly using that cash to buy back shares and pay its debt installments.
Although Sirius’ overall growth has slowed, it is still generating revenues in the high single digits. The company expects to generate $5.3 billion in revenue this year. A week ago, the satellite radio company declared a dividend of 1 cent per share, which represents a forward dividend yield of 0.74%.
Moving ahead, it is well known that the world’s largest online retailer, Amazon (AMZN, Financial), is aggressively focusing on smart home speaker market. Amazon’s Alexa-based smart home speakers, such as Echo, have become popular in a short span of time.
One interesting feature in Amazon Echo is internet radio. Amazon’s smart home speakers offer internet radio already with several companies comprising TuneIn, iHearradio and Amazon Unlimited. Initially, services provided by Sirius XM were not available on Echo devices, but the satellite radio company recently started offering its services on Amazon’s smart home speakers.
This appears to be a smart move as it will allow Sirius XM to reach additional subscribers apart from the car segment. The company first offers a free trial service when a customer buys a new or used car and is following the same business model on the Amazon Echo.
Summing up
Sirius XM has surprised shareholders this year. Despite weak auto sales this year, the company expects to grow its subscribers at a healthy rate which is remarkable. Also, Buffett’s move of adding more shares instead of reducing its exposure looks promising.
On the other hand, the company’s free cash flow continues growing at a healthy rate which will help it to grow well in difficult times. Furthermore, the company’s decision to offer its services on Amazon Echo devices will reap fruitful results. The company trades at a price-earnings (P/E) ratio of 36, greater than the industry’s average.
In all, Sirius XM is geared up for long-term growth, and shareholders should continue holding the stock for more returns in the future.
Disclosure: No position in the stocks mentioned in this article.
