Buying Into Sirius XM Radio Inc (SIRI) For The Long Run

An important competitor to Sirius’s business model comes from new player Pandora Media Inc (NYSE:P), which is down almost 40% since its 2011 IPO. Pandora is looking to enter the auto market by offering streaming radio services in new vehicles. With Sirius owning nearly 70% of the market share for new car sales in the U.S., we would not consider Pandora an enormous threat for now. Pandora also has other competitors to contend with in its core market, namely Spotify.

Cumulus Media Inc. (NASDAQ:CMLS) is a very small competitor that trades at the cheapest forward P/E of the five stocks listed here. The commercial radio station operator is down almost 30% year to date after some huge earnings misses, including a 1,300% 1Q miss. Cumulus now trades at the bottom end of the industry at 10x earnings and 2.7x cash flow. Saga Communications, Inc. (NYSEAMEX:SGA) is another small-cap radio station competitor. Saga trades cheap as well at 12x earnings, but we believe these radio stations trade cheaply for a reason – Saga is expected to grow five-year EPS at only 2% annually. Saga did manage to pay a special dividend recently that amounted to $1.65, i.e. a near 4% yield for investors.

We remain less concerned over Liberty’s potential to gain complete control of Sirius; as the satellite company shows the ability to execute its strategy, we see no reason that Liberty would initiate a complete overhaul. Sirius’s pure play status as a leader of satellite radio service, primarily in autos, makes the valuation stats somewhat moot when compared to other media and Internet radio companies. Sirius trades at 27x earnings, whereas Liberty Media is at 32x, but it also trades well below Liberty on a price-to-cash flow basis at 3.1x, compared to Liberty’s 7.3x ratio. We believe Sirius’s positive outlook also bodes well for Liberty, but we prefer Sirius’s valuation and concentrated business model.