Investors are always on the hunt for a competitive edge, and one surefire way to gain insight is by studying the moves of Wall Street’s legendary investors. Among these titans, Warren Buffett’s name stands tall. Known as the "Oracle of Omaha," Buffett has forged an unparalleled career spanning decades with his exceptional investing wisdom and steadfast value-driven approach. As CEO and chairman of Berkshire Hathaway, he has built one of the world’s largest firms by pinpointing undervalued companies, committing to long-term investments, and emphasizing solid business fundamentals. Naturally, any stock market activity from Buffett draws substantial investor interest.
Buffett’s remarkable success is closely tied to his unwavering adherence to his principles, even if that means going against popular opinion at times. This maverick stance can be seen in some of his recent investment choices. He has been steadily upping his stake in Sirius XM Holdings (NASDAQ:SIRI) and Pool Corp (NASDAQ:POOL). Despite his confidence in these companies, analysts at Bank of America aren’t quite as optimistic.
Through the TipRanks database, we see a similar skepticism among other analysts. Let’s delve deeper to understand why Buffett might be zigging when others are zagging.
Sirius XM Holdings
First on the list is Sirius XM, a significant player in satellite radio and online streaming. Emerging from the 2008 merger of Sirius Satellite Radio and XM Satellite Radio, it has solidified its status as a leader in the audio entertainment industry. Another major merger took place in September when it joined forces with Liberty Media’s Sirius XM tracking stock. This move streamlined both its capital structure and strategy, maintaining its well-known brand.
Offering a vast array of programming that spans music, sports, news, and entertainment, Sirius XM reaches millions across North America with over 200 channels. Besides, it has cemented a strong digital presence, allowing users to stream content both online and via its mobile app.
However, recent earnings reports have been less than stellar. In Q3, consolidated revenue dipped by 4.4% from the previous year, down to $2.17 billion, largely fueled by disappointing advertising revenue from Pandora. Additionally, adjusted EBITDA fell by 7% to $693 million. Consequently, Sirius XM has scaled back its full-year revenue outlook to approximately $8.675 billion, down from its earlier forecast of around $8.75 billion.
Nevertheless, Buffett seems undeterred. He’s been steadily buying shares, holding a whopping 112.5 million shares valued at over $3 billion, making Berkshire the top shareholder with a 32.5% stake.
Buffett might be spotting opportunities that Bank of America analyst Jessica Reif Ehrlich isn’t. She remains skeptical about Sirius XM’s prospects, stating, “Investments to enhance self-pay appeal among younger audiences will take time, while flexible pricing and packaging may dampen ARPU and revenue growth. Moreover, Pandora continues to bleed users, challenging the company’s ability to boost advertising growth. Furthermore, the company is amidst a heightened investment phase, impacting FCF generation. Thus, we expect limited capital return support as the company focuses on trimming its leverage in the next quarters.”
In summary, Ehrlich assigns an Underperform (i.e., Sell) rating on SIRI shares, with her $23 price target indicating a ~15% decline over the coming 12 months.
The general sentiment is lukewarm, with Sirius XM earning a Hold (i.e., Neutral) rating from a mix of 4 Holds, 5 Buys, and few Sells. The average price target on Wall Street is $28.71, suggesting modest gains of 6.5% over the next year.
Pool Corp
Next up is Pool Corporation, the world’s leading distributor of swimming pool supplies and equipment. Catering to varying customers such as pool builders, service professionals, and retailers, the company operates more than 440 distribution centers across North America, Europe, and Australia.
Pool Corp offers a comprehensive range of products, from chemicals and cleaning tools to heaters, pumps, and construction materials. Beyond its core offerings, the company enjoys a steady revenue stream from maintenance products.
This seems like the type of investment typically associated with Buffett – solid returns on capital and a significant competitive edge, or “moat.” Pool Corp’s moat is drawn from its vast scale, consistent revenue from maintenance products, and robust customer relationships.
Unsurprisingly, Buffett has been diving into this stock. He initiated a position in POOL during Q3, purchasing 404,057 shares, now worth over $152 million.
That being said, Buffett is showing confidence during a time of contracting returns. Both revenue and earnings have seen a downward trend this year, as reflected in the Q3 report. Revenue fell by 2.7% year-over-year to $1.43 billion, and adjusted EPS decreased from $3.50 to $3.26. Still, both metrics surpassed street expectations.
Buffett might foresee a turnaround, but Bank of America analyst Shaun Calnan remains doubtful. Despite some adjustments following the Q3 results, his outlook remains bearish.
“Management slightly tweaked the 2024 revenue guide to down 5% from the previous 6% but sustained full-year EPS guidance of $11.06-$11.46 owing to higher operating expenses,” Calnan noted. “We’ve increased our 2024E/2025E by 4%/1% based on the better revenue outlook, raising our PO to $335 (formerly $318), now anchored on a 19x EV/2025E EBITDA (vs. previous 18.5x) due to elevated sector multiples. Nonetheless, our Underperform (i.e., Sell) rating holds, given challenges for POOL to meet its long-term growth algorithm (6-9% topline) in 2025.”
This $335 price target supporting the Underperform rating implies a potential 11% decline over the next 12 months.
Elsewhere, POOL stock garners additional ratings of 4 Holds and 1 Buy, settling at a Hold (i.e., Neutral) consensus. The average price target stands at $379.80, suggesting shares will remain within a narrow range for now.
To discover promising stocks available at lucrative valuations, consider exploring TipRanks’ Best Stocks to Buy tool, which consolidates all TipRanks’ equity insights.
Disclaimer: The viewpoints presented in this article are solely those of the featured analysts. The content is for informational purposes only. It is crucial to conduct your analysis before any investment decisions.
