On Wednesday, Citi downgraded shares of Liberty SiriusXM (NASDAQ:LSXMA) from Buy to Neutral and reduced the price target to $28 from the previous $35. The adjustment follows the merger agreement between SiriusXM and Liberty SiriusXM announced in December 2023, which has significantly narrowed the discount of Liberty SiriusXM's stock to its net asset value (NAV).
The financial firm noted that since the merger news, the discount on Liberty SiriusXM's shares has decreased from approximately 40% to around 2%. The change reflects a shift in the stock's valuation, which previously had a more attractive discount to its NAV.
Citi's analysis suggests that the current stock price reflects a fair balance, given that the once sizeable discount to NAV has now been largely erased. This reassessment implies that the equity's previous appeal based on that discount is no longer present.
The reduction in the price target to $28 is a direct consequence of the narrowed discount and the subsequent reevaluation of the stock's potential upside. The new target indicates a tempered expectation of the stock's growth prospects in light of recent market adjustments.
In summary, the downgraded rating to Neutral and the lower price target reflect Citi's view that Liberty SiriusXM's stock no longer offers the same value proposition as before, due to the reduced discount to NAV following the merger announcement with SiriusXM.
InvestingPro Insights
Following Citi's reassessment of Liberty SiriusXM, a glance at the latest real-time data from InvestingPro shows a company with a stable market presence. With a current market capitalization of $8.29 billion and a P/E ratio of 10.03, Liberty SiriusXM presents as a company with a reasonable valuation in its sector. The adjusted P/E ratio for the last twelve months as of Q4 2023 stands slightly lower at 9.72, suggesting a modest undervaluation compared to the current P/E. Additionally, the revenue for the same period is reported at $8.953 billion, with a gross profit margin of 48.98%, indicating a strong ability to retain earnings from its revenue streams.
InvestingPro Tips highlight that Liberty SiriusXM's stock trades with low price volatility, which could be a point of consideration for investors seeking stability in their portfolios. Moreover, analysts predict profitability for the company this year, which aligns with the positive gross profit margin data. It's also noteworthy that the company has been profitable over the last twelve months. However, it's important for potential investors to be aware that Liberty SiriusXM does not pay a dividend, which might influence investment decisions for those seeking regular income streams from their holdings.
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