Sirius XM (SIRI) Stock Declines After Judge Allows Class Action Lawsuit to Move Forward

NEW YORK (TheStreet) -- Sirius XM (SIRI) shares are down 1.54% to $3.84 in early market trading on Thursday, after a U.S. judge ruled that the satellite radio broadcaster would have to face a class action lawsuit over the payment of royalties for songs created before 1972.

Yesterday's decision by Judge Philip Gutierrez follows a previous ruling in September by Gutierrez stating that the company was liable for copyright infringement for airing 1960s rock band The Turtles' music without paying them royalties.

The Sound Recording Amendment of 1971 extended federal copyright to recordings made on or after February 15, 1972 while recordings made before that date are covered under common law copyright of various jurisdictions.

"Sirius XM treats every single owner of a pre-1972 song the same, namely it doesn't pay them, so it was appropriate for this court to grant class certification," said Henry Gradstein, attorney for the plaintiffs in the case, according to Reuters.

Analysts say that the class action lawsuit opens up the possibility that Sirius and other streaming services like Pandora (P) could pay out damages in the millions and possibly billions, giving lawyers for the artists the leverage needed to possibly force a settlement.

If the lawsuit is successful, it may have wide ranging implications on how much Sirius and Pandora charge as well as what consumers pay for music streaming services,according to Forbes.

Separately, TheStreet Ratings team rates SIRIUS XM HOLDINGS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate SIRIUS XM HOLDINGS INC (SIRI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, increase in net income, good cash flow from operations and expanding profit margins. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • SIRI's revenue growth has slightly outpaced the industry average of 3.8%. Since the same quarter one year prior, revenues slightly increased by 8.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Media industry and the overall market, SIRIUS XM HOLDINGS INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Media industry average. The net income increased by 12.4% when compared to the same quarter one year prior, going from $93.99 million to $105.69 million.
  • Net operating cash flow has increased to $310.03 million or 23.32% when compared to the same quarter last year. In addition, SIRIUS XM HOLDINGS INC has also modestly surpassed the industry average cash flow growth rate of 15.28%.
  • SIRIUS XM HOLDINGS INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SIRIUS XM HOLDINGS INC increased its bottom line by earning $0.09 versus $0.06 in the prior year. This year, the market expects an improvement in earnings ($0.11 versus $0.09).
  • You can view the full analysis from the report here: SIRI Ratings Report

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