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Sirius XM Holdings (NASDAQ:SIRI) shares slipped more than 2% on Thursday as investment firm Citi downgraded the streaming provider’s shares ahead of a potential combination with Liberty Live Nation (NASDAQ:LSXMA).
Analyst Jason Bazinet lowered his rating on Sirius XM Holdings (SIRI) shares to sell from buy and cut the price target to $6 from $7, noting that if Sirius enters into a share exchange with Liberty Live Nation (LSXMA), Sirius’ share count could drop by 10%, but its leverage could increase to 4.8 times debt-to-EBITDA as a result of taking on nearly $2.8B in additional debt.
“As a result, we expect the Street to pivot from levered [free cash flow] to EV-EBITDA as the primary valuation metric,” Bazinet wrote in a note to clients.
The analyst added that if Sirius (SIRI) were to pay Liberty Live Nation (LSXMA) net asset value, the value of Liberty Live Nation (LSXMA) is likely to increase, with Bazinet noting it is the firm’s “favorite stock” in that space.
Bazinet has a buy rating on Liberty Live Nation (LSXMA) and increased its price target to $62 from $60.
The analyst added that he expects a combination of Sirius (SIRI) and Liberty Live Nation (LSXMA) in 2023, as Liberty Live Nation (LSXMA) is expected to split into two tracking stocks – one that has a Live Nation (LYV) stake the other that a stake in Sirius XM (SIRI).
“A cleaner Liberty Live Nation may foreshadow a combination between new Liberty Live Nation and Sirius,” Bazinet added, noting it’s likely that Sirius (SIRI) would pay net asset value and then assume roughly $2.8B in incremental debt from Liberty Live Nation (LSXMA).
Earlier this week, Sirius XM Holdings (SIRI) said it had asked Maxar Technologies (MAXR) to build two new communications satellites.
Analysts are largely bullish on Sirius XM (SIRI). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha’s quant system, which consistently beats the market, rates SIRI a HOLD.
