Pivotal Research Upgrades Sirius XM Radio (SIRI) to Buy, 'Free Cash Flow Acceleration Story'

Pivotal Research analyst Jeffrey Wlodarczak upgraded Sirius XM Radio (NASDAQ: SIRI) from Hold to Buy with a price target of $4.90 (from $5.05).

The analyst comments "In the end, SIRI is a free cash flow growth story, with a decent moat around their core in car business model, with stable to modestly growing revenue and EBITDA, high EBITDA to free cash flow conversion, which will become increasingly apparent as temp capex related to the replacement of its existing satellite system dissipates over the coming years (with again ’24 being the peak capex year (at $700M declining to ~$300M by ’27)). We expect the stock to bottom out around current levels, at the likely July deal close investors should be comfortable looking out to ’25 free cash flow (which we expect to accelerate materially), again we expect SIRI inclusion in additional indexes should help generate institutional interest, and post deal close investors should find the current valuation attractive (7X ’25 free cash flow). Again, we highlight we do not give SIRI any credit for long term (‘29/’30) upside from possibly selling in ‘28/’29 former Sirius 12.5MHz C-band spectrum to terrestrial wireless players (a $2B+ NPV based on historic spectrum transactions and we expect prices by ‘29+ to be materially higher). We value SIRI using a DCF methodology (8% discount rate, 9X EBITDA). Alternatively, at our target price SIRI would trade at 10.75X ’25 FCF. While there may be some short-term overhangs, we frankly do not want to get too cute with this one given we believe a fair value for SIRI is well above current levels, which drove us to raise our rating on SIRI from HOLD to BUY."

For an analyst ratings summary and ratings history on Sirius XM Radio click here. For more ratings news on Sirius XM Radio click here.

Shares of Sirius XM Radio closed at $3.16 yesterday.

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