Shares of Sirius XM Holdings Inc. (NASDAQ: SIRI ) has been shifty this week, with SIRI stock moving between speculation about whether it would buy Pandora Media Inc. (NYSE: P ), as well as news that it's (tangentially) getting love from the smart-money crowd.
Source: Vinod Sankar via Flickr
We have an answer to that latter question. Sirius XM failed to come to an agreement to buy out Pandora, and instead is reportedly interested in making an investment in the streaming music company .
That puts the focus back on SIRI stock itself, which rose immediately after Barron'sput out a report saying that Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A , NYSE: BRK.B ) bought another $40 million in Liberty Sirius XM Group (NASDAQ: LSXMA , NASDAQ: LSXMK ), which tracks Sirius XM.
Sirius XM's Broadcasting Value
This recent buy by Berkshire comes fresh on the heels of another Barron's report last week that claims Berkshire value hunter Ted Weschler, a Warren Buffett's protégé, has from May 15 through May 22 accumulated SIRI stock and Liberty Media series A and C shares estimated to be valued at around $131 million. Barron's noted that these recent buys haven't been of the "averaging down" variety.
In a bold statement of its confidence in its position, Weschler has (on average) paid $1 more for the recent buys, which occurred from May 23 through 25.
In total, Berkshire paid $26.5 million for about 670,000 series C shares, or $39.72 each on average, while Barron's noted that it paid an average of $39.88, or just north of $13 million for 330,000 series A shares. So, if you're keeping score at home, Berkshire now holds 30.4 million series C (non-voting) (up from 29.1 million) Liberty Sirius XM shares and 14.5 million of the series A shares (up from 13.6 million), each of which carries one vote.
What does it all mean?
Besides the fact that Berkshire seems to like Liberty's value-creating potential, Berkshire - by virtue of Liberty's 68% ownership of Sirius - is one of Sirius' biggest shareholders.
So, what's the relationship between SIRI stock and and its a tracking stock? Tracking stock is common stock issued by a parent company that tracks the performance of a certain business without claiming its assets. This tracking structure, which Liberty - formerly known as Liberty Media Corp. - undertook in April of last year, allowed Liberty to recapitalized its existing common stock to accommodate the tracking stock structure.
In so doing, it allows investors like Berkshire to invest in a certain portion of a business, or in this case SIRI, while the parent company maintains overall control. This is because each Liberty Media's Class A stock was reclassified and exchanged for one share of Liberty Sirius XM Class A stock.
But Buffett also owns direct shares of Sirius XM Holdings. His most-recent 13F filing showed that Berkshire now owns 172.3 million of SIRI stock, valued at $830 million based on Friday's close.
Bottom Line for SIRI Stock
When the year began, Berkshire owned 166.6 million shares , according to the mid-February filing. As it stands, not only has Berkshire boosted its stake by 5.7 million shares in the first three months of the year, but the fact that Berkshire continues to buy Sirius tracking stock has it goes higher is a strong endorsement for where Berkshire believes Liberty/Sirius is going.
From my vantage point, given that Sirius' operating costs are fairly fixed, while its subscribers, operating margins and cash flow continue to rise, I continue to expect SIRI stock to reach $5.75 to $6.25 price in the next 12 to 18 months, delivering 20% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
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