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Is Sirius XM Stock a Stay-at-Home Winner?

One of the more interesting analyst observations following last week's blowout earnings report by Sirius XM Holdings (NASDAQ: SIRI) came from Bryan Kraft at Deutsche Bank. In sticking to his bullish buy rating on the shares -- and bumping his price target from $7.50 to $7.75 -- he also called the satellite radio operator a surprising beneficiary of the stay-at-home movement.

Sirius XM has historically been an away-from-home winner. Its lifeblood is the flow of car buyers, as satellite radio is typically consumed from vehicles. The platform is the most valuable to commuters who can appreciate paying a premium for higher quality content than terrestrial radio or having to fidget with their smartphone apps through connected cars. Sirius XM's own marketing efforts consist largely of wooing folks purchasing new or used cars, and satellite radio receivers are now factory installed in 78% of the cars hitting the road. However, Sirius XM's resiliency in its latest quarter does lead one to wonder if the company has finally succeeded in thinking outside of the car box.

Image source: Sirius XM Holdings.

Pump up the volume

Revenue rising by a scant 1% in the third quarter to $2.025 billion may not seem all that impressive, but Wall Street pros were banking on a 4% decline. Revenue actually clocked in with a 5% year-over-year decline in the previous quarter. With folks spending more time at home -- and less time in their car -- it was easy to see why Sirius XM was sorted into the group of stocks that would suffer in the pandemic.

However, the stronger-than-expected financial results paired with a push for fresh digital content should help reshape investor opinion on Sirius XM's fate. Acquiring Pandora two years ago helped shore up Sirius XM's streaming operations, and last week it closed on the sale of podcast hub Stitcher.

We may be at home, but this doesn't mean that we're not streaming music or diving into our favorite podcasts. Folks working from home have more freedom to feed their ears during the workday than they would back at the office, and naturally there's the time saved from the commute itself. Time is opportunity for every audio platform -- and that includes Sirius XM as the parent of several avenues to your eardrums.

Auto sales are showing new signs of life, and that was part of Sirius XM's robust performance and the media stock's move to bump up its revenue and subscriber targets last week. However, we also saw monthly churn contract sequentially to 1.7%, within its historical range and a strong indicator that folks are no longer canceling the premium radio offering in droves the way they did earlier this year.

There are risks in the recovery for Sirius XM, but if it was able to grow in this climate of a weak advertising market, a dip in Pandora's audience, and a pandemic-saddled recession, you have to like its chances in the near future. Sirius XM is showing signs of renewing its appeal as a growth stock again.

It's not just Kraft at Deutsche Bank who is feeling more upbeat about the stock's upside. RBC Capital analyst Kutgun Maral upgraded Sirius XM on Tuesday, boosting his rating from sector perform to outperform. He's also lifting his price target from $6 to $7. A full recovery isn't a slam dunk for Sirius XM, but Maral sees the stock as attractive at its current valuation given the strong business model, healthy balance sheet, and the "beat and raise" report it offered up late last week. The stock may still be trading lower year to date, but momentum is starting to turn positive for Sirius XM Holdings.

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Rick Munarriz owns shares of Sirius XM Radio. The Motley Fool recommends Sirius XM Radio. The Motley Fool has a disclosure policy.


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