It’s been exactly a month since I wrote about this three reasons Sirius XM Holdings (NASDAQ: SIRI) The country could rebound in June. The country’s only satellite radio provider is living up to that potential. Shares have climbed 36% in that span, easily beating the market.
That bliss hasn’t been the default setting for Sirius XM investors. The stock continues to lag in 2024, down more than a third year to date. Things could be different now that there’s a whiff of optimism. Let’s look at some of the reasons why the second half of this year may look more like last month than the last six months.
1. A rare good reverse split happens
Sirius XM plans to do a 1-for-10 reverse stock split this quarter. Unlike anticipated stock splits that are generally well-received, the market doesn’t like it when a company does the opposite. However, replacing all 10 Sirius XM shares with one new share initially valued at 10 times the previous value makes sense here.
Sirius XM is merging with its Liberty Sirius XM Group (NASDAQ: LSXMA) (NASDAQ: LSXMB) (NASDAQ: LSXMK) The merger was long-awaited, as Sirius XM’s majority shareholder has historically seen its tracking stock trade at a discount to its more widely traded common stock.
The deal is expected to close in the third quarter, which began earlier this week. The move will help clear up some of the confusion investors sometimes experience when evaluating different versions of Satrad. Another benefit of the deal is that it will transform Sirius XM from a cheap stock, a hotbed of speculation, into one that institutional investors can take more seriously.
2. Evaluate a good deal
Sirius XM has rebounded from its 11-year low early last month, but the stock remains cheap. Even after last month’s rally, you can pick up Sirius XM for less than 11 times last year’s earnings. You’re also getting Sirius XM for 11 times the $1.2 billion in free cash flow it expects to generate this year.
It’s always worth doing a reality check on stocks that trade at reasonable multiples in an otherwise inflated market. Sirius XM has been posting single-digit organic revenue growth for nearly a decade. Revenue actually declined last year (-0.6%), but it’s been slightly positive in the two consecutive quarters.
3. The dividend is attractive
The stock’s atypical run-up over the past four weeks has been well-received, but it has eaten into the stock’s yield. Sirius XM was yielding nearly 4.5% at its low point last month. It’s now 3%.
Stay with me. Sirius XM has been paying a quarterly distribution since 2016. Despite its winding revenue growth, the company has managed to increase its payout each year, nearly tripling it since the initial declaration. Will it raise its dividend again later this year? Either way, Sirius XM’s quarterly payout will start to look a lot more attractive once the Federal Reserve starts lowering rates.
4. Fundamentals can be improved
Sirius XM has a huge reach, but that reach seems to have stagnated with its 33 million total subscribers. Rumors of Sirius XM’s death have survived recessions, a pandemic that made people use their cars less, and even the golden age of connected vehicles.
What could boost Sirius XM’s growth? Businesses are calling employees back to the office, which is obviously a positive for over-the-air satellite radio. A summer of road trips is also helping the Sirius XM platform’s appeal. AAA is predicting a 5% increase in travel this week for the Independence Day holiday compared to last year, and a 10% increase compared to the pre-pandemic year of 2019.
5. Higher prices could lead to higher stock prices
Streaming Indicator Spotify (NYSE: SPOT) Sirius XM turned heads last month when it raised prices for its service by $1 to $3 per month. It remains to be seen whether Sirius XM uses this opportunity to raise its monthly rates for the first time in 16 months, but it’s a win-win for the media stock.
Unlike music streaming platforms, Sirius XM’s model is more scalable. It relies on its massive user base to secure proprietary content that doesn’t come with the same music licensing fees that can eat into margins. It’s unique. It’s a monopoly. If people are willing to pay a little more for audio entertainment, Sirius XM will make a lot more on the bottom line. It’s time to turn up the volume.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in Spotify Technology and recommends Spotify Technology. The Motley Fool has a disclosure policy.
5 Reasons Sirius XM May Continue to Operate in the Second Half of 2024 was originally published by The Motley Fool
