It's been a rough year for Sirius XM Holdings(NASDAQ: SIRI) investors. Shares of the satellite radio operator have been cut in half this year, making it one of this year's worst mid-cap investments.
A lot has gone wrong for the country's satellite radio monopoly in 2024. Its subscriber base is shrinking, and a tracking stock conversion and subsequent reverse split did not go well. But things should get better from here. Let's go over some of the reasons one of this year's biggest laggards can be a market leader in 2025.
1. The stock is cheap
A rallying market has sent valuation multiples higher for most stocks in 2024, so let's look at the bright side of Sirius XM's shift into reverse this year.
Sirius XM is still a moneymaking machine. It expects to generate $2.7 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) on $8.675 billion this year. It should be another year of 10-figure free cash flow.
Sirius XM is facing some challenges in wooing new listeners. However, value investors should hear this: Sirius XM is cheap. Analyst estimates are inching lower, but the stock is trading for just nine times forward earnings. Income investors can enjoy a 3.9% yield from a company that has raised its payout for eight consecutive years.
Some stocks with single-digit profit multiples are value traps, but Sirius XM has proved resilient over the years. It still entertains 33.2 million subscribers, and its audience is more loyal to the platform than you might think. Monthly churn of 1.6% is near a historical low. Its balance sheet continues to improve, and it's been aggressively buying back its stock for a dozen years. It's a rare bargain just waiting for value stocks to come back in style.
Image source: Getty Images.
2. Sirius XM can roll with the political changes
Sirius XM was well positioned to win no matter who came out ahead of the U.S. presidential election last week. If Vice President Kamala Harris would've won, Sirius XM would've been able to make the most of Harris' plans to expand the child tax credit, forgive more student loan debt, and roll out a hefty tax break for first-time homebuyers. These are moves that would have put more money in the pocketbook of younger adults that Sirius XM needs to appeal to in order to get growing again. Anything that expands the middle class widens the addressable market for Sirius XM.
It's still going to fare well under President Trump's proposals. Trump's plan to reduce corporate tax rates should boost after-tax earnings. With Harris having hoped to raise the corporate buyback tax from 1% to 4%, Trump's arrival means that one of the market's most various buyers of its own stock will keep nibbling away. Sirius XM has reduced its outstanding shares by nearly 45% over the past 12 years. Trump has proposed tax breaks for groups including tip earners, family caregivers, and auto loan interest payers. Anything that gives consumers a break -- particularly car owners -- should make it easier to reverse its subscriber losses in 2025.
3. Warren Buffett is getting serious about Sirius
Sirius XM is one of the dozens of investments in Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) stock portfolio. He owned shares of the satellite radio provider as well as the Liberty Sirius XM Group tracking shares ahead of its September conversion.
When Sirius XM took a hit following the closing of the tracking share transaction and the unpopular 1-for-10 reverse split, Buffett bought the dip. Berkshire Hathaway increased its position last month and now owns nearly a third of Sirius XM's shares outstanding.
The media stock isn't perfect, but it's not half the company it was at the beginning of this year. With a cheap valuation, political tailwinds, and a generational investor in its corner, Sirius XM could be the ultimate comeback stock of 2025.
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Rick Munarriz has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
