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Berkshire Hathaway (BRK-B) has an equity investment portfolio worth over $360 billion, as of the end of the 2022 first quarter. Berkshire Hathaway’s portfolio is filled with quality stocks. You can follow Warren Buffett stocks to find picks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a 13F Filing.

As of March 31, 2022, Buffett’s Berkshire Hathaway owned just over 20 million shares of Liberty Sirius XM Group Series A (LSXMA) for a market value of $924 million. Buffett also owned 43.2 million shares of Liberty Sirius XM Group Series C (LSXMK) for a market value of about $2 billion. Combined, Liberty Sirius XM Group represents nearly 0.8% of Berkshire Hathaway’s investment portfolio.

This article will analyze the broadcasting company in greater detail.

Business Overview

The Liberty SiriusXM Group, through its subsidiaries, engages in entertainment businesses. It features music, sports, entertainment, comedy, talk, news, traffic, and weather channels through radio and mobile applications.

The Liberty Sirius XM Group is 81.2% owned by Liberty Media Corporation, and holds Liberty Media’s ownership in SiriusXM, Live Nation Entertainment, and intergroup interests in the Formula One Group and the Braves Group.

Liberty Media Corporation, and The Sirius XM Group reported first quarter 2022 results on April 28. SiriusXM generated revenue of $1.7 billion, which was a 6% year-over-year increase. Revenue growth was driven by a 9% increase in average revenue per user (ARPU), which now stands at $15.53, and a 3% increase in SiriusXM self-pay subscribers ARPU.

Self-pay subscribers make up the majority of total subscribers. Out of roughly 34 million total subscribers, 32 million were self-pay subscribers. The company achieved a record first quarter churn rate of 1.6%.

We estimate that Liberty SiriusXM can generate $3.08 in earnings-per-share for the fiscal 2022 year.

Growth Prospects

The company’s main avenues of growth are by increasing their subscriber count and increasing the average revenue per user. One way the company could increase their total subscriber count is by incorporating their hardware into more vehicles, which SiriusXM references as their “enabled fleet.”

In the first quarter of 2022, 83% of vehicles sold in the U.S. had SiriusXM’s hardware already incorporated, which was an increase from 81% in the prior quarter. The company’s enabled fleet now stands at nearly 146 million vehicles, which is 9% higher than one year ago.

The company can also offer more programming, which may garner a new audience and demographic, or add to their existing demographic’s favorites. SiriusXM will continue to add new live performances and new podcasts, as well as create new partnerships.

On the other hand, subscriber acquisition costs (which increased by 5% year-over-year in the first quarter), sales and marketing costs (up 28% year-over-year), and R&D costs (up 9% year-over-year) will weigh on earnings growth.

In all, we estimate that SiriusXM Group can continue to grow earnings per share by roughly 3% per annum over the intermediate-term.

Competitive Advantages & Recession Performance

Sirius XM Group’s competitive advantage lies in enabled fleet of 146 million vehicles in North America, as well as its massive library of content, and its partnerships.

While the company as it is today was not around during the great financial crisis, the company performed poorly amidst the COVID-19 pandemic. In 2020, Sirius XM posted big losses and the share price crashed to nearly half of its value prior to the pandemic.

One contributor to this poor performance during the pandemic could be that as people were staying home, they were not utilizing their car radios. What previously could have been a long commute for many workers could have justified holding onto this subscription, but as users stayed home, the product’s relevance dropped.

In 2020, the company also took on a near $1 billion non-cash impairment charge associated with Pandora. It’s important to note, the company still posted more than a billion of free cash flow in the year.

We find SiriusXM to be only partially recession resilient, as there are some alternatives to the product which more frugal users may gravitate towards in the event of a recession.

Valuation & Expected Returns

Shares of Liberty Sirius XM Group have traded for an average forward price-to-earnings multiple of 16.6 in the last five years. Shares have recently been trading for less than the average, which indicates that shares could be undervalued at the current 11.9 times earnings. As a result, we believe there is a potential for a valuation tailwind in the intermediate-term.

Our fair value estimate for Liberty Sirius XM Group stock is 16.0 times earnings. If this proves correct, the stock will benefit from a 6.0% annualized gain in its returns through 2027. Shares of Liberty Sirius XM Group currently do not pay a dividend, so investors must rely on earnings growth and valuation expansion for total returns.

Putting it all together, the combination of valuation changes and EPS growth produces total expected returns of 9.2% per year over the next five years. This makes Liberty Sirius XM Group a hold.

Final Thoughts

Given the significant share price losses so far in 2022, the company appears to be undervalued on a price-to-earnings basis and offers multiple expansion.

The company also has some avenues of earnings growth in the intermediate term and offers decent total returns today. However, with no dividend, Liberty Sirius XM Group may be a pass for income investors.