Sirius XM (NASDAQ: SIRI), a leading provider of satellite radio, is scheduled to announce its fiscal third-quarter results on Tuesday, October 31. We expect Sirius XM stock to likely trade higher with revenue and earnings beating market expectations. In addition, its subscription revenue came in flat at $1.7 billion whereas ad revenue saw marginal declines y-o-y in Q2. Sirius stock had a rough start to 2023 and declined from $5.84 to $4.23 YTD, negatively impacted by headwinds in advertising and a delayed recovery in the auto sales industry. Pandora also continues to struggle to stabilize its monthly active users and total listening hours. In addition, the entire company remains heavily in debt at $9.4 billion. Despite all this, the media company benefits from a historically meager churn rate, with an implied average life for new car purchases of around five years – thanks to its solid business model. By taking advantage of the advertising reach it receives through radio, Sirius XM could likely push Pandora into podcasting for further growth opportunities. And, if we consider that SIRI stock now trades at 14x forward earnings with operating margins of 20% – the long-term price could see gains.
SIRI stock has suffered a sharp decline of 35% from levels of $6 in early January 2021 to around $4 now, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. SIRI has had a poor run, with the stock losing value in each of the last 3 years. Returns for the stock were 0% in 2021, -8% in 2022, and -28% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 8% in 2023 – indicating that SIRI underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SIRI face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?
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