2 Things SIRI Stock Owners Should Be Happy to Hear

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Sirius XM Holdings (SIRI) has been one of the more controversial stocks of the last five years, but it’s a great-performing stock nonetheless.

2 Things SIRI Stock Owners Should Be Happy to HearHowever, with SIRI stock near multiyear highs, and its valuation stretched, the company needs to keep sentiment high and investors optimistic. Based on CEO James Meyer’s recent comments, Sirius stock investors should be quite pleased looking ahead.

Stern Talks Are Proceeding Nicely

Howard Stern is the quintessential face of Sirius XM, and next month his contract expires. SIRI reportedly pays Stern north of $80 million a year. Therefore, the company is willing to dish out some serious cash to keep its biggest star.

However, investors have been concerned that Stern would want to move on and explore new opportunities. He already has a gig on America’s Got Talent, and there have been various reports that he wants to get more involved in the TV side of entertainment. But, according to SIRI, the two sides hope to have a new agreement by next month, with money being the last thing to work out.

This is great news, as it suggests that Stern does want to stay, and that he likely will. After all, Sirius XM has already proven it will pay the radio host just about anything.

With that said, investors should expect an enormous number, and a big increase to SIRI’s selling, general and administrative expenses following this new deal. This company has grown revenue more than 60% while its operating income has more than doubled since Stern signed his last extension at the end of 2010.

Chances are, Stern will want a big raise for his part in driving this growth, whether it is fair or not.

Management Will Not Slow the Pace of Buybacks

Sirius XM has been a stock buyback machine over the last three years, spending more than $6 billion on share repurchases during that span.

There has been some concern among investors that management would slow the pace of buybacks, but according to its CEO, buybacks remain “the best use of capital,” suggesting that SIRI will continue to return its high earnings back to shareholders via buybacks.

That said, Sirius XM’s aggregate buyback total is $8 billion, leaving about $2 billion to spend on buybacks moving forward. If we assume that SIRI’s buyback activity remains unchanged, then it will spend $2 billion over the next year. With a market capitalization of $21.4 billion, that will buy back more than 9% of its outstanding shares.

To get an idea of how this benefits shareholders, SIRI could reduce its share count by 490 million shares if it spent $2 billion at its current price. If so, SIRI stock would have to trade at $4.53 to maintain the same market capitalization as it has today by the time this share reduction was complete. That equals stock gains of more than 10%.

An Added Bonus

On top of a very generous buyback program and the likelihood of Howard Stern sticking around a little longer, Sirius XM remains a great overall company.

During its last quarter Sirius XM had record revenue and subscribers while profits soared 22% year-over-year. But perhaps more importantly, it expects two million net new subscriber additions for the year. Back when the year first started, SIRI was expecting just 1.2 million.

Given this rate of improvement coupled with the Howard Stern negotiations and the company’s continued buyback preference, SIRI stock looks like it will continue to be a winning stock that outperforms major indexes.

As of this writing, Brian Nichols owned shares of Sirius XM.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/2-things-siri-stock-sirius-xm/.

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