Macquarie Calls Sirius XM (SIRI) Balance Sheet 'Fierce', Discusses Pandora (P) Takeover Potential

Macquarie maintains Outperform on Sirius XM Radio (NASDAQ: SIRI) & keeps a price target of $5.00.

Analyst Amy Yong comments "As Sirius XM no longer gets credit for its impressive beat/raise track record, the big debate is on balancing organic growth/M&A options with capital returns. Pandora (P US, US$12.12, Outperform, TP: US$14.00) certainly makes an already great product better. However, standalone fundamentals for Sirius XM are just as good with a fierce balance sheet for both capital returns and acquisitions. With or without Pandora, we believe shares are still attractive: our target goes to US$5 while our SIRI-P PF valuation would be US$5.50-US$5.80 assuming 2-3x margin expansion."

Addressing possible buyout of Pandora (NYSE: P) Yong says "Assuming a US$15/sh offer, we estimate the purchase of Pandora would dilute our '17 FCF/sh estimate by ~3%. The strength of Sirius XM's balance sheet could easily absorb an all-cash or mostly-cash deal and still fulfill most of its capital return commitments. Meanwhile, the satellite-digital combination and the addition of Pandora’s ~80m+ active users as well as its 80/20 ad/sub mix would future-proof Sirius XM’s business model. Pandora's large user base, mobile presence, and brand could singlehandedly resolve Sirius XM's digital strategy."

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 $4.63 yesterday.

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