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Is Morgan Stanley Right about SIRI Stock?
Stock Analysis & Ideas

Is Morgan Stanley Right about SIRI Stock?

For anyone with a long commute, Sirius XM (SIRI) has likely proven a lifesaver. This satellite radio titan offers music, sports, news and comedy virtually everywhere in the United States and beyond. Working with cars and other platforms, it presents a massive amount of audio entertainment.

It also lost 2% in premarket trading on Monday, and the losses continued into Monday morning’s trading. I’m bullish on Sirius XM, however, because there’s a lot more to this platform than its presence in cars.

Sirius XM stock has been highly volatile this year, but mostly within a range of about $1 either way. Sirius XM has spent the last year trading between $5 and $7 per share, and generally has kept between $5.50 and $6.50 per share.

The latest news did Sirius XM few favors. Morgan Stanley downgraded the company from “equal weight” to “underweight,” noting that the company is likely to take some hits from the overall automobile market.

Morgan Stanley also pointed out how Sirius XM did over the last year, and suggested that a high point may already be baked in.

Wall Street’s Take

Turning to Wall Street, Sirius XM has a Moderate Buy consensus rating. That’s based on four Buys and one Sell assigned in the past three months. The average Sirius XM price target of $7.45 implies 18.5% upside potential.

Analyst price targets range from a low of $7 per share to a high of $7.75 per share.

Mixed Bundle of Inputs

This is the part where things start getting a bit muddy in overall perception for Sirius XM. Analysts seem fairly eager to recommend it. Given that buyers are outstripping sellers four to one, and no one is occupying the moderate Hold position, it would be easy to think that extreme viewpoints would abound herein. That turns out to be exactly the case.

The TipRanks 13-F Tracker, for example, reveals that hedge funds have all but abandoned Sirius XM stock. Involvement plummeted between March and July 2020, but then, it held fairly stable for just over a year thereafter.

It gets more baffling from there. Insider trading has been brisk for Sirius XM, and almost exclusively on the buy side. While there has been selling almost every month since May 2021, buying has outpaced selling substantially.

Just to further complicate things, Sirius XM’s dividend history offers its own insight. Sirius XM maintained a minimal dividend for around three years. From May 2019 to August 2021, it offered a penny a share.

That it maintained said dividend through 2020, and the worst of the pandemic, is noteworthy. Then, in November 2021, that dividend doubled, hitting $0.02 per share.

Not Seeing the Forest for the Trees

On one hand, Morgan Stanley is right. Sirius XM’s biggest use case is in cars, and with good reason. Most of its value is in taking the edge off of drivetime hours, offering just about any sort of music you could ask for and then some. However, Morgan Stanley seems to be missing a much bigger use case Sirius XM can offer.

Fair disclosure: I’m a Sirius XM subscriber and have been for some time. It really is fantastic for long drives, but what Morgan Stanley is missing is the Sirius XM app.

Most of Sirius’ channels are not actually available for car radios. While Sirius does offer plenty for the car, the bulk of its content is available through its mobile app. Those with sufficient mobile connections can make the app’s content available in the car, but that’s more a workaround than an official function.

This also includes Sirius’ growing stock in trade: podcasts. Sirius has made several deals to augment its podcast lineup, including a recent deal with Critical Role.

A deal with Marvel will bring the voice-only adventures of Squirrel Girl (one of a handful of heroes to beat Dr. Doom) to the platform, and recently, Sirius brought the Freakonomics Radio Network into play as well.

So to suggest that issues in vehicle sales will hurt Sirius XM is not really out of line. However, Sirius XM’s biggest trade is out of the car. That’s going to limit the impact that vehicle sales will have on Sirius XM.

Concluding Views

A bear case for Sirius XM is fairly clear. The semiconductor shortage is crippling car sales. That hurts one of Sirius’ biggest markets. The fact that hedge funds are racing for the door doesn’t help either.

However, making up for that is a surge of insider buying, as well as regular retail buyers. Portfolios holding Sirius XM have been on the rise for the last month. Throw in a surging growth of use cases for outside-the-car listening, and suddenly cars don’t mean all that much to Sirius any more.

Morgan Stanley has a point, but with Sirius’ expanding array of use cases, I think that point means a lot less than it might have. That’s why I’m bullish on Sirius XM.

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