On Wednesday, Goldman Sachs (NYSE:GS) adjusted its financial outlook for Sirius XM Radio (NASDAQ:SIRI), reducing the price target to $21 from the previous $23, while maintaining a Neutral rating on the stock.
The firm's decision follows Sirius XM's recent press release detailing financial guidance for the fiscal years 2024, 2025, and 2027, as well as strategic business updates.
The satellite radio company confirmed its financial guidance for 2024 but provided initial guidance for 2025 and 2027 that fell short of market expectations. Sirius XM announced a strategic shift, reallocating marketing and technology resources from its streaming service, which was recently relaunched, to its primary in-car subscription service.
"Following these updates, we reduce our outlook for 2025+ Revenue, Adjusted EBITDA and Free Cash Flow to reflect greater than anticipated pressures on SiriusXM's core subscription and advertising businesses heading into next year as well as updated cost efficiency targets (e.g. $200M in incremental run-rate cost savings exiting 2025)," said Goldman Sachs analysts.
Regarding strategy, the analyst views the move away from a streaming-only growth focus as either neutral or slightly positive for the company's investment story. The revised 12-month price target of $21 reflects a tempered forecast for adjusted EBITDA and free cash flow.
This target is based on an equal-weighted average of three valuation methods: a 7.0x multiple of the estimated 2025 price to free cash flow (P/FCF), a 6.5x multiple of the estimated 2025 total enterprise value to EBITDA (TEV/EBITDA), and a discounted cash flow (DCF) analysis using an 8.5% weighted average cost of capital (WACC) and a 1.0% terminal growth rate (TGR).
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