Sirius XM Holdings has been a profitable media company since 2001. It generates tons of free cash flow, which it uses to repurchase its own stock and increase its dividend. However, the company"s business has been affected by a slowdown in new car sales. This is especially true in the last few years.
As of the end of the first half of the year, Sirius XM had 31.4 million self-pay subscribers, a record amount. However, management has tempered its expectations for the year, reducing its forecast for net additions to self-pay subscribers by 1.1 million. Despite this, the company is still expecting 10% growth from the second quarter of this year, as well as 15% growth in overall revenue.
Sirius XM"s stock has fallen roughly 4% so far in 2018. The stock has also dropped 9% in the last year. A downgrade last week from JPMorgan analyst Sebastiano Petti fueled concerns about Sirius" near-term prospects. However, there are only a few negative catalysts brewing that could cause its share price to decline more.
The company has already received a warning letter from Nasdaq. After the company failed to meet a deadline set by the exchange in September 2009, a second notice was sent. When that deadline passed, a hearing was scheduled. In that hearing, the company requested that the Nasdaq Listing Qualifications Panel delay a decision on whether to delist the company.
However, the hearing was postponed until April 29, meaning that the company won"t be able to take action on that front until then. The Nasdaq panel also has the option of dropping the company to its Pink Sheets or Over-The-Counter Bulletin Board. For the time being, the company has chosen to continue listing on the Nasdaq Global Select Market. Since it has 150 million shares outstanding, it would have to pay an annual fee of about $95,000 to stay on the market.
While it"s possible that Sirius XM will benefit from the reverse split, it"s not a foregone conclusion. That"s because the reverse split will only have an impact on the share price if it makes the company more appealing to investors. Even then, the effect will only be a small boost.
Another possible factor to consider is the company"s recent acquisition of Agero. Agero is a company that provides connected vehicle services, which have become an important part of Sirius"s business model. At the end of June, the company had a record 31.4 million self-pay accounts. By 2021, the company is expecting to have 1.1 million more self-pay accounts than when it began that year.
The other reason why Sirius XM deserves a look is its strong margins. Traditionally, the company has raised its full-year forecasts during quarterly check-ins.