Sirius XM's skyrocketing stock cools as analyst says it's 'impossible' to justify the valuation

By James Rogers

Two analysts downgrade the stock after massive Thursday surge

Shares of Sirius XM Holdings Inc. were pulling back sharply Friday, down 12% after several analysts said a recent stock surge was out of step with the radio and streaming company's profitability and urged investor caution.

"Sirius XM is now by far the most expensive stock in our US cable & telecom coverage universe with secular concerns about the long-term growth," wrote Evercore ISI analyst Vijay Jayant, as he downgraded Sirius XM's stock (SIRI) to underperform from in line.

The move came after Sirius shares shot up 42% in Thursday's session, a dynamic he said seemed "related to a short squeeze in a stock with a small float rather than any fundamental change in the business."

He suggested that investors instead consider shares of Liberty Media Corp. Series A Sirius XM (LSXMA), a tracking stock that owns 83% of Sirius XM but was trading at a 61% discount to its net asset value as of the publication of Jayant's Friday morning note to clients.

Pivotal Research Group also downgraded Sirius XM's stock, with analyst Jeffrey Wlodarczak moving to a sell stance from his prior hold rating.

"It's impossible for us to justify fundamentally SIRI's current valuation," he wrote Friday. "In the end fundamentals/valuation (not short covering/index reweighting) inevitably matter."

He upped his price target on the stock to $4.50 from $4 but noted that the new target still implied considerable downside. Sirius XM shares recently changed hands at $6.75.

Benchmark Research analyst Matthew Harrigan, however, reiterated an upbeat view of the stock as he boosted his price target to $7 from $6 and maintained a buy rating, citing the impact of owner Liberty Media Corp.'s (LSXMA)(FWONA)split-off of the MLB Atlanta Braves team parent Atlanta Braves Holding Inc. (BATRA).

"Despite the likely immediate SiriusXM stock price retreat we do regard the business as fundamentally attractive, with the likelihood of a transaction with Liberty somewhat amplified by the Braves split-off and August 3rd tracking stock reclassification and the creation of the new Liberty Live tracking stock," he wrote.

Related:Sirius XM to lay off 8% of workforce amid advertising pullback, uncertain economy

Of 16 analysts surveyed by FactSet, two had a buy rating, six had a hold rating and eight had an underweight or sell rating for Sirius XM.

Related:Sirius XM names company veteran Thomas Barry its next CFO

Sirius XM's stock has risen 80% in the last three months, outpacing the S&P 500 index's gain of 10%.

-James Rogers

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07-21-23 1020ET

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