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TheStreet Open House

Here's Why Sirius is Still a Buy Despite Apple

NEW YORK ( TheStreet) -- Things never get dull at Sirius, the satellite-radio operator. Shares of Sirius XM (SIRI) have sputtered yet again, down 2.3% for the year.

The stock saw a 2% spike Friday on news that Liberty Media (LMCA) -- which currently owns 53% of the company -- was exiting plans to scoop up the rest of Sirius it doesn't already own.

Some analysts have come to the satellite radio company's defense, proclaiming that Sirius is better left alone.

First, it was Jessica Reif Cohen, analyst at Bank of America (BCA), who issued a buy rating on the stock and slapped it with a $5 price target. From Tuesday's closing price of $3.39, this target represents a 47% premium above current value. If Cohen is correct, this makes Sirius one of the best bargains on the market.

It would seem that Sirius' long-term value is better than what is being projected for Apple (AAPL). With Apple having just entered the automobile dashboard with CarPlay, Apple just became a Sirius competitor, which comes after Apple released iTunes Radio last year. From a value perspective, it makes sense to compare both companies as they tackle similar markets.

Carl Icahn claims Apple is a "no-brainer." Cohen, by virtue of her 47% suggested premium, is essentially making the same claim for Sirius. But which one is the better buy?

Apple's stock closed at $531.40 Tuesday. If you factor in Cantor Fitzgerald's price target of $777, the industry's most bullish, this represents a premium of (only) 46%. I say "only" because Cohen's target for Sirius still beats Apple's mark by 1%. So does Cohen believe that Sirius is a better long-term investment than Apple? I think one could come to this conclusion.

For her $5 per share target, Cohen cited (among other things) Sirius' satellite platform and the company's exclusive content. She claims that Sirius' satellite platform has a competitive advantage versus any other audio-only offering. Based on the stock's recent movement, the market disagrees.

Monday, Evercore Partners reinstated Sirius stock with an "overweight" rating, while placing a price target of $4.50. It's not as optimistic as Cohen's target, but it still represents a 32% premium to Sirius' price at the market's close on Tuesday. Has anyone bothered to ask Liberty Media Chairman John Malone, one of the smartest people in media, why he would give up such value if he believed it was realistic?

Malone just backed out of a deal where he offered 0.076 shares of Liberty for each outstanding share of Sirius. At the time, Malone's offer valued Sirius shares at $3.68. Investors rebelled and won.

From the reports I've read, the consensus seems to believe a $4-per-share conversion would have sealed the deal. If both Cohen and Evercore are correct on their respective price targets, an equivalent offer by Malone would still present him with (at minimum) a return of 12.5% and 25% for Sirius XM. Not to mention, Malone would have gotten full ownership of a company with projected 2014 free cash flow of $1.1 billion.

That's what I call value.

From my vantage point, Malone's decision to shift gears and go in another direction suggests that he's not using the same formula as Cohen and Evercore. And I don't advise that investors do, either.

At the time of publication, the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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