Today's boost in Sirius XM's stocks can be attributed to...
Shares of SiriusXM (SIRI) saw a significant surge today, increasing by 12.3% as of 1:37 p.m. ET.
The broader market also saw growth today, fueled by a better-than-expected personal consumption price index report. However, Sirius received an additional boost due to Warren Buffett and his team at Berkshire Hathaway (BRK.A 0.41%) (BRK.B 0.25%), who announced an enhanced investment in Sirius last night.
Buffett's team aims to buy low on Sirius
On Thursday night, Berkshire Hathaway submitted a Form 4 to the Securities and Exchange Commission, revealing an increase in its investments in three companies, including Sirius. Berkshire usually discloses its purchases and sales 45 days after the end of a quarter, but since Berkshire owns more than 10% of Sirius, it had to file immediately.
Between Dec. 17 and 19, Berkshire acquired approximately 5 million shares of Sirius for around $113 million. This increase increased Berkshire's holdings in Sirius to roughly 117.5 million shares, amounting to a 35% stake in the satellite radio platform valued at approximately $2.7 billion.
Sirius faced renewed scrutiny earlier this month following the release of a strategic update. The company predicted that its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would be slightly lower in 2025 compared to 2024. Additionally, Sirius announced it was reducing investments and refocusing its business on its core automotive subscription base.
These factors led to a temporary decline in Sirius' stock price, falling below $20 per share at one point, a level not seen in years. However, Berkshire took advantage of this dip by purchasing more shares.
Should you invest in Sirius alongside Berkshire Hathaway?
Ted Wechsler is believed to be responsible for managing Berkshire's investment in Sirius, employing Buffett's classic value-investing strategy. Despite the recent negativity surrounding the stock, Wechsler appears to believe that SiriusXM's core audience remains intact, and that its previous attempts to expand its audience beyond auto commuters were not significant setbacks.
If his analysis is correct, the stock seems significantly undervalued. Despite the forecasted slight revenue and EBITDA declines in 2025, Sirius still predicts growth in free cash flow from $1 billion in 2024 to $1.15 billion in 2025, thanks to $200 million in cost savings. This means the stock is currently trading at just 7 times its projected 2025 cash flow.
The critical question is whether Sirius can maintain its audience or if music streaming apps will pose a threat to its business. At present, Berkshire appears to be betting on Sirius' proprietary radio personalities and its deep ties with automakers to ensure its continued success.
After Berkshire Hathaway's enhanced investment in Sirius, some might consider following their lead in finance terms, viewing this as an opportunity for potential profits from investing in SiriusXM. According to Ted Wechsler, who manages Berkshire's investment in Sirius, the company's core audience remains strong, and despite the recent negativity surrounding the stock, Sirius's free cash flow is projected to increase.
