Berkshire Hathaway Chairman Warren Buffett is a value investor at heart. Value investing involves finding stocks that are trading below their intrinsic value and buying them at a discount. Although the concept often sounds like a no-brainer, value investing is a lot harder than it sounds because many stocks are for sale for a reason. Investors will grapple with whether a stock is truly valuable or whether it is a value trap.
One equity holding in Berkshire's portfolio has found itself in the middle of this very debate: Sirius XM Holdings (NASDAQ: SERI). Shares of the digital audio company have fallen nearly 58% this year, and some Wall Street analysts have recently downgraded it. Despite Sirius' struggles, Berkshire has been buying the stock all year. Does Warren Buffett know something Wall Street doesn't?
Let's have a look.
Sirius operates Sirius satellite radio and the Pandora music streaming service. Earlier this year, the company split from Liberty Media, seeking to streamline its corporate structure, and also conducted a 1-for-10 reverse stock split to make its shares more attractive to investors. The company has also started a a new strategy that means building its podcast platform by buying distribution rights and selling exclusive advertising from big 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 pays a whopping 4.6% dividend yield and is considering share buybacks. This allows investors to collect passive income while the company executes a turnaround story.
Lately, however, Sirius has shown that most transformation stories require patience. The company provided a strategic update and updated guidance for 2025. Sirius expects revenue next year to come in at around $8.5 billion, which fell short of previous analyst estimates. This would be a reduction of the revenue predicted for 2024 and it is worrying because the company has experienced a reduction in the number of subscribers at times this year.
In its strategic update, Sirius also said it was targeting $200 million of run rate savings by the end of the year and a further reduction in debt of around $700 million. Management also said they were committed to maintaining the company's dividend.
The updated guidance led to several downgrades from analysts, who also lowered their price targets, citing headwinds fueled by the disappointing guidance and subscriber trends. In many cases, companies trying to implement a turnaround struggle if they can't demonstrate the potential to grow revenue and earnings because investors doubt the strength of the core business.