Barlcays Downgrades Sirius XM, Liberty Sirius XM Group; Says Satellite Radio Business Entering 'More Mature Phase'

Shares of Sirius XM Holdings Inc SIRI have gained more than 80 percent over the past two years, and the strong growth story has fully played out, according to Barclays.

The Analyst

Barclays' Kannan Venkateshwar downgraded Sirius XM from Equal Weight to Underweight with an unchanged $5 price target. 

The analyst downgraded Liberty Sirius XM Group LSXMA from Overweight to Equal Weight and lowered the price target from $50 to $43. 

The Thesis

Sirius XM has taken full advantage of a strong new and used auto market in recent years to grow its subscriber base while simultaneously lowering subscriber acquisition costs, Venkateshwar said in the downgrade note. Yet the company is now entering a "more mature phase" of growth, which presents a new set of challenges, he said. 

Sirius' headwinds include the following, the analyst said:

• The stock's appreciation over the years makes it more difficult to continue the share buyback program at prior levels.
• Margin expansion will be "tougher."
• Management faces more pressure to prioritize M&A.
• An increase in overall competition. 

Sirius XM's stock has grown to become "one of the most expensive" across the entire media group, at 21 times 2019 estimated P/FCF, the analyst said. When adjusted for growth, Sirius shares appear more expensive than top-performing internet names, he said. 

Investors looking for exposure to Sirius XM through Liberty Sirius XM Group may want to reconsider as well, Venkateshwar said.

The stock has historically undervalued its Sirius stake, but the discount in net asset value may close as Sirius XM's stock moves lower, according to Barclays. 

Price Action

Shares of Sirius XM were trading lower by 1.63 percent at the time of publication, while Liberty Sirius XM Group shares were down 1.72 percent.

Related Links:

Pivotal Turns Neutral On Sirius XM, Says Liberty Sirius Is A Better Strategy

Sirius Downgraded By Buckingham, But Analyst Sees Additional Upside In The Satellite Radio Stock

Photo courtesy of Sirius XM.