Macquarie Calls Sirius XM (SIRI) Balance Sheet 'Fierce', Discusses Pandora (P) Takeover Potential
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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."
Shares of Sirius XM Radio closed at $4.63 yesterday.
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