In years gone by, momma told me if you want to be successful, learn what successful people do and a emulate it. Investors would be wise to follow mom’s advice.
Warren Buffet is the face of successful stock market success. The Oracle of Omaha’s Berkshire Hathaway recently bought nearly 4.4 million shares of The Liberty SiriusXM Group (LSXMK). The investment guru laid out more than $151.5 million at a cost average of $34.50. It looks like Buffet’s Berkshire started to build its position in LSXMK in March and now owns more than 14% of the mostly broadcasting holding company. (1)
Liberty Media Corporation owns interests in a broad range of media, communications, and entertainment businesses. Those interests are attributed to three tracking stock groups: the Braves Group, Formula One Group, and Liberty SiriusXM Group.
The Liberty SiriusXM Group – LSXMK – consists of:
- 4% Ownership of the Braves Group
- 2% of Formula One Group
- 5% of iHeartMedia, Inc. (IHRT)
- 33% of Live Nation Entertainment, Inc. (LYV)
- And 71% of Sirius XM Holdings Inc. (SIRI) (2)
According to the most recent quarterly report, Sirius XM accounts for 97% of LSXMK’s revenue, $1.952 billion of $2.013 billion. So, its fortunes are directly tied SIRI. Investors need to understand the fortunes of Sirius before moving forward with Liberty SiriusXM Group.
Knowing Buffet, from reading about his investing style, cash flow is a big deal for the man. SIRI has been generating a growing pile of dollar bills. In the last four years, the satellite radio company generated cash flow of $1.38 billion, $1.47 billion, $1.2 billion, and $1 billion. As we type, SIRI trades at 15.8 times cash flow, whereas its peer group is pricier, averaging 24.7 times cash flow.
It’s also a bit discounted on a forward price to earnings (P/E) ratio relative to its industry group. Peers are valued at 28 times next year’s consensus numbers versus 26 for SIRI. Other metrics, price to sales (P/S) and current P/E are slightly higher than competitors.
Earnings per share (EPS) are forecasted to grow 9%, from $0.22 this year to $0.24 in 2021. At the same time, revenue is expected to climb from $7.69 billion in 2020 to $7.94 billion next year, 3.2% growth. (3)
In the last five years, SIRI has traded at an average of 32.11 times EPS and at 4.53 times sales. Based on 2021’s consensus EPS and revenue estimates, the stock would trade at $7.71 and/or $8.21, earnings and sales respectively. So, let’s just call it $8. Analysts foresee SIRI trading at $6.33 in the next 12-months.
SIRI shares would climb by 5.9% to Wall Street’s consensus and by 33.87% if it traded at $8. Since 97% of LSXMK’s revenue comes from SIRI, Liberty SiriusXM stock could move between 5.72% and 32.84%.
The Play: Since Sirius XM Holdings Inc. (SIRI) accounts for 97% of Liberty SiriusXM Group’s (LSXMK) revenue, investors might consider SIRI over LSXMK, unless you are an Atlanta Braves fans. It’s essentially the same thing, except the stock price is considerably lower. And, as you can see from this chart, the two have a high correlation but SIRI tends to outperform Liberty Group.