In its latest earnings report,
reported solid fundamentals and growth, but the market yawned.
Sirius performed not only on the operational side of the
business, but on the financial side, too. The company bought back
6% of its outstanding shares, and the company now trades at a
very reasonable 19.5 times this year's projected free cash flow.
And John Malone - the man behind Sirius's majority owner
- will continue to undertake an ongoing leveraged
recapitalization. That means more buybacks are on the way,
creating even more value for shareholders. That's why my
Special Situations portfolio
is buying more Sirius.
A solid second quarter
Sirius continued to show good growth in the second quarter, and
management raised expectations for the full year. Revenue was $1
billion, up 10% year over year. That was driven by 475,000 net
new subscribers, and the subscriber base grew 5% from year-ago
levels, to 26.3 million.
Adjusted EBITDA climbed 31%, to $370 million. Free cash flow
grew 42%, to $335 million. And with more than $1 billion in share
repurchases, free cash flow per share soared even faster, up
But let's back up to those repurchases, which are really
helping to drive value for shareholders. In 2014, Sirius has
already repurchased $1.6 billion in shares, including a massive
6% of its share count in just the second quarter. With more than
$2 billion remaining on its repurchase authorization, I expect
the company will continue to aggressively buy back stock. It
still has a fully untapped $1.25 billion credit line.
So what price are we paying for this performance. Using fully
diluted share count of 6.2 billion shares, the market cap comes
to $21.2 billion. With expected free cash flow for 2014 of $1.1
billion, investors are paying a little over 19 times for this
cash machine. If we assume another $2 billion in buybacks at an
average price of $3.50, then Sirius today is trading at 17.5
times free cash flow.
And while Sirius's leverage target is now 4 times EBITDA, it
won't surprise me to see that inch up to 4.5 times in the next
year. That would allow more room for buybacks. So there's still a
lot to like about Sirius. And with Liberty Media not selling into
the buyback, that Malone entity becomes an increasingly larger
majority owner of Sirius. So you see there's more than one way to
take over this satrad superstar. For more on Sirius, follow me on
. And check out my
dedicated discussion board
Foolish bottom line
So with that performance, my
Special Situations portfolio
will be acquiring another $500 in Sirius stock on the next market
day. The long term still looks on track and the stock should
return very good returns for shareholders from today's price.
More from The Motley Fool:
Warren Buffett Tells You How to Turn $40 into
It's Time to Buy More Sirius XM
originally appeared on Fool.com.
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