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Citi has upgraded Sirius XM (NASDAQ:SIRI) and downgraded related name Liberty Sirius XM (NASDAQ:LSXMA) — bringing its rating on both securities to Neutral as a net asset value discount gap between the two has essentially closed.
After helping rescue Sirius XM from bankruptcy years ago, Liberty Media had become majority owner of the company with an 83% stake which it held through the Liberty Sirius tracking stock — and many investors looking for a cheaper way in had gone through buying Liberty Sirius, which had built up a 40% NAV discount before December news that Liberty would merge the two stocks.
Expecting that gap to narrow, Citi had previously rated Sirius XM (SIRI) Sell and Liberty Sirius XM (LSXMA) a Buy, analyst Jason Bazinet noted.
That discount has narrowed from about 40% to around 2%, leading to a “relatively balanced” risk-reward view and the ratings changes. The surprise came with how the NAV discount narrowed, he says: through a decline in Sirius XM equity without appreciation in Liberty Sirius value.
The new price targets Citi has on both entities reflects the view that, pro forma, Sirius XM is worth eight times enterprise value/EBITDA.
That means lowering the SIRI target to $3.30 from $4.10, and cutting the LSXMA target to $28 from $35. At midday Wednesday, SIRI was -0.5%; (LSXMA) -1%; (NASDAQ:LSXMK) -0.8%.
