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Citi has updated Sirius XM (NASDAQ:SIRI) and related downgraded name Liberty Sirius XM (NASDAQ:LSXMA) — raising the rating on both stocks to Neutral, as the NAV discount gap between the two has virtually closed.
After helping rescue Sirius XM out of bankruptcy years ago, Liberty Media had become a majority owner of the company with an 83% stake it owned through Liberty Sirius tracking shares, and many investors looking for a cheaper way in had bought Liberty Sirius, which had built up to a 40% discount NAV before the December news that Liberty merge the two actions.
Expecting that gap to narrow, Citi had previously rated Sirius XM (SIRI) a Sell and Liberty Sirius XM (LSXMA) a Buy, analyst Jason Bazinet noted.
That discount has narrowed from around 40% to around 2%, leading to a “relatively balanced” risk-reward view and changes in ratings. The surprise came with the way the NAV discount was reduced, he says: through a drop in Sirius XM's equity without appreciation in the value of Liberty Sirius.
Citi's new price targets for both entities reflect the view that, pro forma, Sirius XM is worth eight times enterprise value/EBITDA.
That means reducing SIRI's target to $3.30 from $4.10 and cutting LSXMA's target to $28 from $35. On Wednesday at noon, SIRI was -0.5%; (LSXMA) -1%; (NASDAQ:LSXMK) -0.8%.
