Sirius`s Ownership Structure
Sirius XM Radio Inc (NASDAQ:SIRI) is in the broadcasting business. It broadcasts all types of news, sports, music, weather and entertainment, much of it over the internet, to paid customers in the U.S., of which there were more than 23 million at the end of 2011. Its market capitalization is $22.3 billion and its P/E is 7. In the first quarter of 2013 its net profit margin was 13.77% and its operating margin was 27.52%, while for 2012 those figures were 102.88% and 21.33%, respectively.
Buyback Program
Sirius XM Radio Inc (NASDAQ:SIRI) announced a buyback program amounting to $2 billion, which, as a percentage of Sirius’s capitalization, is almost 10%. What makes Sirius XM Radio Inc (NASDAQ:SIRI)’ buyback program particularly interesting, though, is its ownership structure. Liberty Media owns half of Sirius, and another 30%, equivalent to $6.5 billion, is owned by institutional investors. That leaves only $4.5 billion available to retail investors.
Competition
CBS Corporation is a mass media company broadcasting a variety of entertainment, news and sports programs, as well as having the most viewed television network in the U.S.
It has a market capitalization of $30 billion and its P/E ratio is 18.4. CBS’ stock price has recovered remarkably well from the lows of $3.88 at the depth of the recession to reach $49.18 at present. It is certainly in an older, steadier market than Sirius XM Radio Inc (NASDAQ:SIRI) or Netflix, Inc. (NASDAQ:NFLX), and this means less innovation but steady returns. Since 2009, CBS has had a steady climb in net income each year–it went from $227 million in 2009 to $1,700 million in 2012. Of course, CBS competes in with Sirius XM Radio Inc (NASDAQ:SIRI) over content and viewers, but the two companies have quite different models–Sirius is proud to have no advertising, whereas CBS is basically an advertising company.
Conclusion
Because of Sirius’s ownership structure, its buyback program has a much greater impact since it represents about 44% of its available float. Although the program has already started, it seems that most of its stock has not yet been bought back, so that most of the purchase will be done over the coming year. That means that there will be a guaranteed demand for a very large percentage of its available float.
CBS’s P/E ratio of 18.4 may signal that it has peaked, considering the steady and uninterrupted rise in its stock price since early 2009. It doesn’t have any particular claims to be an especially attractive value, either in terms of innovation or other considerations, such as insider buying or buyback scheme.
Netflix, Inc. (NASDAQ:NFLX) is the quintessential growth stock. Its fundamentals, as evidenced by its revenue growth and profit margins, don’t justify its present valuation. Its P/E of 532 reflects that reality. Its attraction resides in being a pioneer in the provision of entertainment via the internet. Perceptions of the company ride on whether or not it will be able to capitalize on the opportunity.
Sirius seems to be a safer bet, especially in the short run. Such a guaranteed large purchase of available stock gives investors at minimum a floor, and more likely a significant upside, as the out-sized demand will tend to push up its price.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Sirius is Getting Serious About Its Stock originally appeared on Fool.com is written by Mike Thiessen.
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