Sirius shares flying high after takeover offer
Liberty Media, which already holds a majority stake in the satellite radio company, wants to buy all the outstanding shares.
By Keris Alison Lahiff
NEW YORK ( TheStreet ) -- Investor appetite for Sirius XM ( SIRI +6.30% ) was strong in Monday's trading session, causing shares to rocket nearly 7% to $3.82.
Pushing shares higher, Liberty Media ( LMCA -2.77% ) made an offer on Friday to acquire all outstanding Sirius shares in a full-ownership takeover of the satellite radio company.
The broadcasting giant already holds a majority stake but seeks to make Sirius an 100%-owned entity.
Sirius' Board received a non-binding offer letter from Liberty outlining a proposal for shares not owned by Liberty to be converted into the right to receive 0.0760 of a new share of Liberty's common stock. The exchange puts Sirius stock at a $3.68 value based on Liberty's closing share price last week.
Should the transaction be completed, Sirius' public stockholders would own around 39% of Liberty's outstanding common stock.
TheStreet's ratings team rates Sirius XM Holdings Inc as a "buy" with a ratings score of "B." The team has this to say about its recommendation:
"This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 2.2%. Since the same quarter one year prior, revenues rose by 10.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has increased to $302.24 million or 37.49% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 14.83%.
- The gross profit margin for Sirius XM Holdings is rather high; currently it is at 65.01%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.54% trails the industry average.
- Sirius reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Sirius increased its bottom line by earning $0.53 versus $0.07 in the prior year. For the next year, the market is expecting a contraction of 86.8% in earnings ($0.07 versus $0.53).
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
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