Sirius XM Stock Plummets After Revised Cash Flow Forecast Despite Merger Completion

By 10:15 a.m. ET on Tuesday, shares of Sirius XM Holdings had plunged 7.2% following an update on its financial forecasts.

Earlier that morning, the company announced the completion of its merger with Liberty Media’s Sirius XM tracking stock, involving a much-awaited reverse stock split. Management highlighted the benefits of a “simplified capital structure,” which purportedly provides a “clear path forward.” However, the market took a different view, sending Sirius’s stock price downward.

What Sirius Promised Investors

Is this reaction justified? Let’s examine the financial guidance Sirius shared on Tuesday:

– Revenue for fiscal year 2024 is projected to be around $8.75 billion, maintaining previous estimates.

– Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is expected to reach approximately $2.7 billion, consistent with earlier forecasts.

– Most notably, Sirius anticipates generating about $1 billion in free cash flow this year.

Initially, these figures appear positive. However, there’s a catch. The critical issue seems to be the revised free cash flow forecast. Five months earlier, during its first-quarter report, Sirius XM guided investors to expect $8.75 billion in revenue, $2.7 billion in EBITDA, and $1.2 billion in free cash flow for 2024. Thus, the significant revelation on Tuesday wasn’t just the merger’s completion or the stability of most projections, but rather the $200 million reduction in expected cash flow.

Is Sirius Stock a Buy?

Currently, Sirius has a market capitalization just below $10 billion, paired with an annual free cash flow generation of $1 billion. The stock is anticipated by investors to achieve a long-term annualized earnings growth rate of about 10%, leading to a perception of fair valuation. Given this context, the recent dip in Sirius’s stock price might present investors with a purchasing opportunity.

Consider management’s commitments to maintain dividend payments at approximately 4.3% annually and to repurchase $1.2 billion in stock, and the argument for investing in Sirius strengthens further.

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