Published on July 3rd, 2022 by Quinn Mohammed
Berkshire Hathaway (BRK.B) has an equity investment portfolio worth over $360 billion, as of the end of the 2022 first quarter.
Berkshire Hathaway’s portfolio is filled with quality stocks. You can follow Warren Buffett stocks to find picks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a 13F Filing.
You can see all Warren Buffett stocks (along with relevant financial metrics like dividend yields and price-to-earnings ratios) by clicking on the link below:
Free Excel Download: Get a free Excel Spreadsheet of all Warren Buffett stocks, complete with metrics that matter – including P/E ratio and dividend yield. Click here to download Buffett’s holdings now.
Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.
As of March 31st, 2022, Buffett’s Berkshire Hathaway owned just over 20 million shares of Liberty Sirius XM Group Series A (LSXMA) for a market value of $924 million. Buffett also owned 43.2 million shares of Liberty Sirius XM Group Series C (LSXMK) for a market value of about $2 billion. Combined, Liberty Sirius XM Group represents nearly 0.8% of Berkshire Hathaway’s investment portfolio.
This article will analyze the broadcasting company in greater detail.
Business Overview
The Liberty SiriusXM Group, through its subsidiaries, engages in entertainment businesses. It features music, sports, entertainment, comedy, talk, news, traffic, and weather channels through radio and mobile applications.
The Liberty Sirius XM Group is 81.2% owned by Liberty Media Corporation, and holds Liberty Media’s ownership in SiriusXM, Live Nation Entertainment, and intergroup interests in the Formula One Group and the Braves Group.
Liberty Media Corporation, and The Sirius XM Group reported first quarter 2022 results on April 28th.
SiriusXM generated revenue of $1.7 billion, which was a 6% year-over-year increase. Revenue growth was driven by a 9% increase in average revenue per user (ARPU), which now stands at $15.53, and a 3% increase in SiriusXM self-pay subscribers ARPU.
Self-pay subscribers make up the majority of total subscribers. Out of roughly 34 million total subscribers, 32 million were self-pay subscribers. The company achieved a record first quarter churn rate of 1.6%.
We estimate that Liberty SiriusXM can generate $3.08 in earnings-per-share for the fiscal 2022 year.
Growth Prospects
The company’s main avenues of growth are by increasing their subscriber count and increasing the average revenue per user.
One way for the company to increase their total subscriber count is to incorporate their hardware into more vehicles, which SiriusXM references as their “enabled fleet”.
In the first quarter of 2022, 83% of vehicles sold in the U.S. had SiriusXM’s hardware already incorporated, which was an increase from 81% in the prior quarter. The company’s enabled fleet now stands at nearly 146 million vehicles, which is 9% higher than one year ago.
The company can also offer more programming, which can garner a new audience and demographic, or add to their existing demographic’s favourites. SiriusXM will continue to add new live performances and new podcasts, as well as create new partnerships.
On the other hand, subscriber acquisition costs (which increased by 5% YoY in the first quarter), sales and marketing costs (up 28% YoY) and R&D costs (up 9% YoY) will weigh on earnings growth.
All in, we estimate that SiriusXM Group can continue to grow earnings per share by roughly 3% per annum over the intermediate term.
Competitive Advantages & Recession Performance
Sirius XM Group’s competitive advantage lies in enabled fleet of 146 million vehicles in North America, as well as its massive library of content, and its partnerships.
While the company as it is today was not around during the great financial crisis, the company performed poorly amidst the COVID-19 pandemic. In 2020, Sirius XM posted big losses and the share price crashed to nearly half of its value prior to the pandemic.
One contributor to this poor performance during the pandemic could be that as people were staying home, they were not utilizing their car radios. What previously could have been a long commute for many workers could have justified holding onto this subscription, but as users stayed home, the product’s relevance dropped.
In 2020, the company also took on a near $1 billion non-cash impairment charge associated with Pandora. It’s important to note, the company still posted more than a billion of free cash flow in the year.
We find SiriusXM to be only partially recession resilient, as there are some alternatives to the product which more frugal users may gravitate towards in the event of a recession.
Valuation & Expected Returns
Shares of Liberty Sirius XM Group have traded for an average forward price-to-earnings multiple of 16.6 in the last five years. Shares are now trading for less than the average, which indicates that shares could be undervalued at the current 11.9 times earnings. As a result, we believe there is a potential for a valuation tailwind in the intermediate term.
Our fair value estimate for Liberty Sirius XM Group stock is 16.0 times earnings. If this proves correct, the stock will benefit from a 6.0% annualized gain in its returns through 2027.
Shares of Liberty Sirius XM Group currently do not pay a dividend, so investors must rely on earnings growth and valuation expansion for total returns.
Putting it all together, the combination of valuation changes and EPS growth produces total expected returns of 9.2% per year over the next five years. This makes Liberty Sirius XM Group a hold.
Final Thoughts
Given the significant share price losses so far in 2022, the company appears to be undervalued on a price-to-earnings basis and offers multiple expansion.
The company also has some avenues of earnings growth in the intermediate term and offers decent total returns today. However, with no dividend, Liberty Sirius XM Group (LSXMA) may be a pass for income investors.
Other Dividend Lists
Value investing is a valuable process to combine with dividend investing. The following lists contain many more high-quality dividend stocks:
- The Dividend Aristocrats List is comprised of 65 stocks in the S&P 500 Index with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 44 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
