The big news for Sirius XM (SIRI) shareholders on Monday morning was a lengthy Barron's article about the company which cited an investment firm posting a $6 target on the stock. Sirius XM shares spiked hard on the news, opening at $3.86, up about 5% from the previous closing price. But interest seemed to fizzle and shares meandered down throughout the day, until finally closing down 2 cents. While the stock performance on Monday was nothing to write home about, the broader implications of the issues mentioned in the article and the price target are important.
I have written about the drab perception that Sirius XM has had for the last decade among the investing public. Although it is hard to quantify, the company's reputation often precedes it when investors think about the company. In many way this has actually been beneficial to shareholders who have confidence in the company and understand its true value. Those investors had ample time to accumulate shares over the years at remarkably low prices and watch them steadily rise. Going forward, Sirius XM's shares are trading at considerably more expensive valuations and it will take much more to move the stock higher.
The great news is, the perception of Sirius XM as a very risky stock with shaky financials and perpetual loses is finally changing. The company has been performing exceptionally well of late and major players are pushing into the stock. The Barron's article cites one such market player with a big investment in the company. Rainier Investment Management, with $11 billion under management has recently made a $100 billion investment in Sirius XM and portfolio manager Sam Console thinks the shares have a lot of room to run. He sees the shares appreciating by over 50%, and has a price target for the stock of $5.5 to $6. That a far cry from the miniscule 5 cent price that the shares were trading at in 2009. Longtime shareholders are ecstatic.
Mr Console goes on to mention that Sirius XM was always mostly a retail stock holding, but is starting to get a much greater institutional following. The massive stock price appreciation probably has a lot to do with that, but we must be clear that Sirius XM story is not simply a tale of a good stock. The company has earned that stock rise. Marking a complete reversal from a history of massive consecutive losses and huge capital investments to posting huge profits and a free cash flow of around $900 million in 2013.
The Barron's article is a great read and Sam Console is definitely a fan of the company. Based upon strong sales in the auto industry, and Sirius XM's higher than average profit margins when compared to Comcast (CMCSA), DirectTV (DTV) and Netflix (NFLX), he foresees strong profits for the company and large subscriber gains. Sirius XM shareholders are likely familiar with these growth trends, and it's great to see large institutional investors noticing the potential for the company and making sizable investments in the stock.
To be sure, it seems that not only has Sirius XM turned a corner with respect to it's financial performance, but it also seems to be getting a lot more respect of late from the analyst community. While it's difficult to quantify what effect this will have on the share prices, it's nice to know that Sirius XM's performance is being recognized.
ISI Group analyst Vijay Jayant has a $4.40 price target on Sirius XM, stating that he expects cash flow to rise 35% per year, reaching 30 cents per share in 2015. Bank of America analyst Jessica Reif Cohen, had a $4 price target on the shares in June 2013, when the shares were trading just above $3.00. Citi analyst Jason Bazinet has a $4.50 price target on the company and expects Sirius XM to buy back up to $11 billion of it's stock through the end of 2015.
Indicated below are a few more analyst targets for Sirius XM. And it's important to note that in the last month, two more companies have initiated coverage of the company - Pacific Crest and FBR Capital. In addition to lofty price targets, it's always a great sign to see the analyst coverage for a company expanding.
Matthew Niknam, Goldman Sachs - $4.50 price target
Barton Crockett, FBR Capital - $5.00 price target
James Marsh, Piper Jaffray - $5.00 price target
UBS AG - $5.50 price target
Maxim Group - $5.80 price target
Investors should be proud of Sirius XM's execution in recent years. The company has gone from near bankruptcy to a thriving success. Longtime shareholders who had faith in the company's business model and plan have been greatly rewarded. As coverage of the company's success spreads and new shareholders pile in, the stock price will increase further. The financials are strong and investor perception is finally reflecting the company's performance.