Berkshire Hathaway Chairman Warren Buffett is a value investor at his core. Value investing involves finding stocks trading below their intrinsic value and buying them at a discount. While the concept often sounds like a no-brainer, value investing is much more difficult than it sounds because many stocks are on sale for a reason. Investors will grapple over whether a stock is truly of value or whether it’s a value trap.
One equity holding in Berkshire’s portfolio has found itself in the middle of this very argument: Sirius XM Holdings (NASDAQ: SIRI). Shares of the digital audio company have fallen nearly 58% this year, and some Wall Street analysts recently downgraded it. Despite Sirius’ struggles, Berkshire has been buying the stock all year long. Does Warren Buffett know something Wall Street doesn’t?
Let’s take a look.
Sirius operates Sirius satellite radio and the music streaming service Pandora. Earlier this year, the company split off from Liberty Media, attempting to simplify its corporate structure, and also conducted a reverse 1-for-10 stock split to make its shares more attractive to investors. The company has also embarked on a new strategy that involves building out its podcast platform by purchasing exclusive distribution and ad sales rights from large brands like Call Her Daddy and Smartless.
The new strategy caught the attention of Buffett, who loves a good turnaround story. It also doesn’t hurt that Sirius is paying a hearty 4.6% dividend yield and contemplating share repurchases. This allows investors to collect passive income while the company executes a turnaround story.
Recently, however, Sirius demonstrated that most turnaround stories require patience. The company provided a strategic update and updated guidance for 2025. Sirius expects next year’s revenue to come in around $8.5 billion, which fell short of prior analyst estimates. This would represent a decrease from projected 2024 revenue and is concerning because the company has experienced declining subscribers at times this year.
In its strategic update, Sirius also said it is targeting $200 million of run-rate savings by year-end and further debt reduction of roughly $700. Management also said it is committed to maintaining the company’s dividend.
The updated guidance led to several downgrades from analysts, who also lowered their price targets, citing headwinds driven by the disappointing guidance and subscriber trends. In many cases, companies trying to execute a turnaround struggle if they can’t show the potential to grow revenue and earnings because investors doubt the strength of the core business.
