Why You Should SIRIously Consider Liberty SiriusXM Group Stock

Dear Bottom Line Investor,

Happy Saturday.

Today we’re going to dive into a rare situation: The chance to ride on the coattails of none other than Warren Buffett and profit off a double-whammy arbitrage/deep value situation.

The big news came on December 12, 2023, when Liberty Media announced a significant restructuring to simplify its ownership of SiriusXM. By merging Liberty SiriusXM Tracking Stock Group with SiriusXM to form a new public entity, which continues under the SiriusXM banner, the company aims to enhance shareholder value. 

This strategic move is designed to eliminate complexities associated with the tracking stock structure, thereby increasing liquidity and enabling direct stockholder participation in SiriusXM's performance. The simplified corporate structure and the single-class stock system are set to attract a broader investor base and potentially improve trading liquidity.

And when we say complexities, we mean it. Just look at all the different securities entangled with the Liberty Media parent in one way or another:

Enter Buffett & Co.

For months now, Buffett has been buying into this situation hand over over. And, as of Friday’s close, Berkshire increased its stake in Liberty SiriusXM (LSXMA), purchasing an additional 500,000 shares on April 26, 2024, at $24.64 each, elevating its total holdings to 35,182,219 shares.

First, this move is partly an arbitrage play, leveraging the price disparity between SiriusXM's direct shares (SIRI), which trade at a premium, and the lower-priced Liberty tracking securities at a ratio of 8.4:1 (equating to $25.36 per share - a 3% premium to LSXMA’s Friday close of $24.31).

Not bad but nothing to write home about.

So now it becomes clear that Buffett is in it for the long haul (big surprise) and that the current discount to SIRI’s valuation is a happy coincidence.

SIRI Could Be Seriously Cheap

A dip in SIRI’s share price so far in 2024—from over $5 per share down to just over $3 as of Friday’s close, puts SIRI’s valuation at just 10 times earnings (and free cash flow).

Now we’re talking.

Especially considering that, with more than 34 million paid subscribers and a presence in 155 million SiriusXM-enabled vehicles, the company dominates the North American audio entertainment landscape. Its ability to consistently generate high EBITDA margins and strong free cash flows underpins its capacity to invest in growth while maintaining healthy capital returns to shareholders.

The Bottom Line

With a stock that offers both stability and potential for appreciation, LSXMA represents a strategic portfolio addition that has the endorsement of none other than the Oracle of Omaha.

We here at Bottom Line Investing SIRIously recommend giving The Liberty SiriusXM Group (LSXMA) consideration.

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