Shares of SiriusXM (SIRI 12.15%) were rallying big today, up 12.3% as of 1:37 p.m. ET.
While most of the market was up today on the back of a better-than-feared personal consumption price index report, beaten-down Sirius got an extra oomph thanks to Warren Buffett and his investing staff at Berkshire Hathaway (BRK.A 1.37%) (BRK.B 0.86%), which disclosed an increased stake in Sirius last night.
Buffett & Co. try to bottom-tick Sirius
On Thursday night, Berkshire Hathaway filed a Form 4 with the Securities and Exchange Commission, disclosing it had increased its stake in three stocks, with Sirius being one of them. Berkshire typically discloses its buys and sells 45 days after quarter-end, but when Berkshire owns more than 10% of a company, as it does with Sirius, it must issue a filing immediately.
Between Dec. 17 and 19, Berkshire accumulated roughly 5 million shares of Sirius for about $113 million. This increase brought Berkshire’s total holdings in Sirius to about 117.5 million shares, good for a 35% stake in the satellite radio platform worth about $2.7 billion.
Sirius came under renewed pressure earlier this month after the company released a strategic update, indicating its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) would be slightly lower next year than in 2024, and that the company was also cutting investments and refocusing the business on its core automotive subscriber. Then of course we experienced market weakness this week on top of that following Wednesday’s Federal Reserve interest rate decision and more hawkish outlook for 2025.
This double whammy sent Sirius’ stock down a touch below $20 per share at one point, its lowest level in many years. That’s when Berkshire stepped in to buy even more.
Should you follow Berkshire Hathaway into Sirius?
It is believed that Ted Wechsler is the one that bought and is managing the Sirius position for Berkshire, but Wechsler certainly follows Buffett’s value-investing approach. Given the recent pessimism in the stock, it appears Wechsler still thinks SiriusXM’s core audience is intact, and that recent failed efforts to find new audiences outside auto-based commuters isn’t that big of a deal.
If he’s right, the stock does look awfully cheap. Even with the new forecast for slight revenue and EBITDA declines in 2025, Sirius actually forecast growth in free cash flow from $1 billion in 2024 to $1.15 billion in 2025, thanks to $200 million in cost cuts. That means the stock trades at just 7 times next year’s cash flow.
The key will be whether SiriusXM can maintain its audience, or whether music streaming apps will disrupt its business. As of now, Berkshire appears to be betting on Sirius hanging in there with its proprietary radio personalities and embedded partnerships with automakers.
Billy Duberstein and/or his clients have positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
