Yahoo Finance Sirius XM Holdings Inc (NASDAQ:SIRI) Investors Are Paying Above The Intrinsic Value
How far off is Sirius XM Holdings Inc (NASDAQ:SIRI) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after May 2018 then I highly recommend you check out the latest calculation for Sirius XM Holdings here.
Is SIRI fairly valued?
I use what is known as the 2-stage model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To start off, I took the analyst consensus estimates of SIRI’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 9.54%. This resulted in a present value of 5-year cash flow of US$6.14B. Want to know how I calculated this value? Check out our detailed analysis here.
In the visual above, we see how how SIRI’s top and bottom lines are expected to move in the future, which should give you some color on SIRI’s outlook. Then, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes US$15.68B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$21.82B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of $4.87, which, compared to the current share price of $6.95, we find that Sirius XM Holdings is rather overvalued at the time of writing.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For SIRI, I’ve put together three key factors you should look at:
Financial Health: Does SIRI have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does SIRI’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of SIRI? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
