Warren Buffett is arguably the greatest stock market investor in the world. Also called the “Oracle of Omaha,” Buffett has delivered market-beating gains over several decades. Due to his stellar record managing the equity holdings of Berkshire Hathaway (BRK.B), Wall Street closely watches every investing move that Buffett makes. However, despite his ability to consistently pick winning bets, Buffett also picks the occasional dud - and currently owns stocks that trail the broader markets by a wide margin in 2024.
One current underperformer in the Buffett portfolio is Sirius XM Holdings (SIRI), a company valued at $12 billion by market cap. While the S&P 500 Index ($SPX) is trading close to its all-time highs, SIRI stock is down an astonishing 42.6% in 2024 - which means the stock is faring even worse than Paramount Global (PARA), which Buffett openly told investors they “lost quite a bit of money” on at this past weekend's annual shareholder meeting.
Due to its steep pullback, Sirius stock has now returned just 9.5% to shareholders in dividend-adjusted gains over the last decade, compared to the 225% returns of the S&P 500.
Let’s see if it makes sense for non-Buffett investors to own Sirius XM Holdings stock at the current multiple.
An Overview of Sirius XM Holdings
Sirius is a New York-based audio entertainment company with two primary business segments: Sirius XM, and Pandora and Off-platform. The Sirius XM business provides music, sports, entertainment, and other content, as well as podcast and infotainment services on a subscription-fee basis.
Its Pandora and Off-platform segments operate music, comedy, and podcast streaming services that offer a personalized experience to users through devices such as smartphones, computers, tablets, and speakers.
Notably, Buffett has been loading up on shares of Liberty SiriusXM (LSXMK), a tracking stock, alongside SIRI ahead of the companies' planned merger, set to be complete early in the third quarter of this year.
How Did Sirius XM Holdings Perform in Q1 of 2024?
In Q1 of 2024, Sirius reported revenue of $2.16 billion, an increase of 1% year over year and above estimates of $2.12 billion. While sales from the SiriusXM business fell 1% to $1.7 billion, Pandora grew the top line by 7% year over year.
The company reported an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $650 million, up 4% from the year-ago period. Sirius ended Q1 with adjusted earnings of $0.07 per share, up from $0.06 per share last year.
While Sirius beat estimates on sales and earnings, the company provided 2024 forecasts that were below Wall Street’s expectations. For the full year, Sirius forecast sales of $8.75 billion - down 2.2% from 2023, and below estimates of $8.79 billion.
Why Is Goldman Sachs Bullish on SIRI Stock?
Investment bank Goldman Sachs last week upgraded Sirius stock from “sell” to “neutral,” based on its compelling valuation. However, the brokerage firm simultaneously lowered its price target on SIRI stock from $3.50 per share to $3.25 per share.
According to Goldman, Sirius continues to wrestle with rising competition for premium audio services, which might inevitably lead to lower average revenue per user and slower subscriber growth. Nevertheless, Goldman Sachs believes the stock’s current valuation offers shareholders a balanced risk-reward profile.
What Is the Target Price for SIRI Stock?
Out of the 11 analysts covering SIRI stock, four recommend “strong buy,” five recommend “hold,” and two recommend “strong sell,” for a consensus of “hold.” The mean target price for SIRI is $4.05, indicating an upside potential of almost 30% from current prices.
Priced at 10.4x times forward earnings, SIRI stock is quite cheap, as it is forecast to increase earnings by 7.8% annually in the next five years. In addition to its cheap valuation, SIRI also pays shareholders an annual dividend of $0.11 per share, translating to a forward yield of 3.4%.
Sirius expects to end 2024 with a free cash flow of $1.2 billion. Given its outstanding share count, it would pay roughly $425 million in dividends this year, indicating a payout ratio of 35%, which is sustainable. In the last eight years, Sirius has more than doubled its dividend payment.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
