Sirius XM Holdings Inc.

SIRI Details
 
Siri’s Product Gains Traction: Sirius XM Holdings Inc. (NASDAQ: SIRI) is a radio broadcasting company, which is involved in creating and broadcasting a range of content that includes commercial-free music, premier sports and live events, news and comedy and entertainment shows. Recently, the company along with U2 announced that the band's much-awaited U2 X-Radio channel will release on July 1, 2020, completely on SiriusXM Channel 32. In another update, SiriusXM and Ford Motor Company stated that SiriusXM with 360L is planning to be available on all future F-150 models in 2021, with its next-generation SYNC® 4 communications and entertainment system. 
 
SIRI Acquires Simplecast: On June 17, 2020, the company stated the buyout of Simplecast, a leading podcast management platform. The acquisition pairs Simplecast solutions with monetization platform of AdsWizz, the adtech subsidiary of SiriusXM, thereby expanding and strengthening SiriusXM's and Pandora's tools and monetization services for podcasters and publishers. In another update, the company expanded its existing broadcast partnership with FOX News Media.
 
1QFY20 Key Highlights: During the quarter, the company reported earnings of 7 cents per share, up ~33% on pcp. On a reported basis, total revenues stood at $1.95 billion, up 11.9% year over year. On a pro-forma basis, revenues soared 5.1% on pcp. The year over year increase was due to higher subscriber and advertisement revenues. As of March 31, 2020, total subscribers came in at 34.766 million, up from 34.171 million as of March 31, 2019. Pandora’s pro-forma revenues for the quarter came in at $369 million, up 11% year over year.Total operating expenses came in at $1.48 billion, up 5.2% on pcp. Adjusted EBITDA increased 12.7% from the year-ago quarter, on the back of higher revenue base across the business and decreases in subscriber acquisition costs, customer service and billing costs along with general and administrative expenses. The company exited the quarter with a cash balance of $40 million and long-term debt amounting to $7.847 billion.
 

Revenue Highlights (Source: Company Reports)
 
What to Expect: For FY20, SIRI, suspended its guidance, which included self-pay net subscriber additions, revenue, adjusted EBITDA, and free cash flow. 
 
Risks:  The COVID-19 pandemic has created numerous material uncertainties in SIRI’s business, such as disruptions in the supply of radios and other components that are vital elements for its service.Further, stiff competition from peers and high debt remains a potential headwind.

Stock Recommendation: The stock of SIRI closed at $5.87 with a market capitalization of $25.7 billion. The stock made a 52-week low and high of $4.11 and $7.4 and is currently trading at the upper band of the range. The stock of the company has run up 15.62% in the last three months. The company’s strategy of joining forces with artists and organizations are key catalysts. Partnerships with the likes of Coldplay, Chainsmokers & Lizzo, Pearl jam and Harry Styles to name a few to perform in concerts and shows have been successful in drawing subscribers. On the valuation front, the stock is trading at an EV/Sales multiple of 4.2x as compared to the industry median of 1.1x on TTM (Trailing Twelve Months) basis. Thus, it can be said that the stock of SIRI is overvalued at current trading levels. Hence, considering the current trading levels, price movement over the last three months, business prospects and higher debt level as compared to the cash available on the balance sheet, we have a wait and watch stance on the stock at the current market price of $5.87 per share, up by 2.98% on 30 June 2020.

 
SIRI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 

Plug Power, Inc.

 

PLUG Details
 
PLUGS’s Completes Acquisition: Plug Power, Inc. (NASDAQ: PLUG) is engaged in providing alternative energy technology, which is aimed at designing, developing, manufacturing and commercializing hydrogen fuel cell systems. On June 23, 2020, the company stated that it has completed United Hydrogen Group Inc. and Giner ELX acquisitions. The buyouts are in accordance with PLUG’s vertical integration strategy to have more than 50% of the hydrogen used to be green by 2024. The move fortifies Plug Power’s position in the hydrogen industry with enhanced capabilities in the generation, liquefaction and distribution of hydrogen fuel and gives a clear path to PLUG for the transition from low-carbon to zero-carbon hydrogen solutions. Given these acquisitions, PLUD raised its 2024 financial targets to achieve $1.2 billion in revenue, up from the prior outlook of $1 billion. It now expects operating income to be ~$210 (previously $170 million), and adjusted EBITDA to be ~$250 million (previously $200 million). Further, the company also expects existing customers to use ~ 100 tons of hydrogen per day by 2024 out of which more than 50% is expected to be green hydrogen.
 
1QFY20 Key Financial Highlight: During the quarter, the company reported revenues of $40.8 million, up from $21.6 million reported in the year-ago period. Operating loss during the quarter came in at $25.9 million, as compared to an operating loss of $20.5 million reported in the year-ago period.In 1QFY20, PLUG recorded gross billings of $43.0 million, up 89% year over year. GAAP loss per share stood at 12 cents, as compared to 14 cents reported in the year-ago period. The company implemented more than 1,000 fuel cell systems and had billings related to 4 hydrogen infrastructure programs.
 

Key Financial Highlights (Source: Company Reports)
 
What to Expect: The company reiterates its FY20 outlook to achieve $300 million in gross billings, which depicts more than 25% growth on a yearly basis. Amid COVID-19 led outbreak, the company is witnessing higher demand from its customers, focused on the delivery of mission critical products and online sales, which is likely to lessen the slowdown for PLUG’s manufacturing customers, particularly automotive customers. Going further, the company is likely to benefit from the increasing popularity of fuel-cell engines and hydrogen stations. Also, its efforts to leverage its ProGen platform to expand into on-road and large-scale stationary markets are key catalysts.
 
Risks: The company is exposed to various kinds of risks such as forex issues and geopolitical concerns, arising from international operations, which is likely to impact company’s financial performance. Also, a higher cost of revenue and operating expenses add to the woes.
 
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of PLUG closed at $8.21 with a market capitalization of ~$2.7 billion as on 30 June 2020. The stock is trading at the upper band of its 52-week trading range of $1.88 to $8.26. The stock went up by ~95% in the last one month and 131.92% in the last three months period. Debt to equity of the company stood at 2.01x in Mar’20, higher than the industry median of 0.60x. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with limited upside (in percentage terms). Hence, considering the current trading levels, valuation, higher debt to equity ratio and recent price movement, we suggest investors to ‘Avoid’ the stock at the current market price of $8.21, up 2.75% as on 30 June 2020.

 
PLUG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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