Andrew Bary
Sirius XM Holdings could be dropped from the Nasdaq 100 index later in June because of a sharp decline in the market value of the satellite radio company in recent months.
The Nasdaq 100 index, or NDX, gets rebalanced quarterly and component changes can be announced in conjunction with that news. The rebalancing adjusts the weighting of index components based on share count changes and other factors.
The index is reconstituted annually in December. The quarterly rebalancing is set to occur on Friday, June 21 based on a published schedule and an announcement about the details of the rebalancing is due on Thursday after the close of trading.
That announcement normally occurs on the second Friday of the month of the rebalancing but Nasdaq wants to give market participants five business days to prepare for the rebalancing with the Juneteenth holiday occurring next Wednesday.
Shares of Sirius XM Holdings, which were added to the Nasdaq 100 index in 2011, have gained 4.1% to $2.67 on Wednesday, but are down 51% this year. That's the worst showing in the Nasdaq 100, which consists of 100 of the largest nonfinancial companies in the Nasdaq. The Nasdaq 100 index is up about 16% this year.
Sirius XM stock has been depressed by concerns about subscriber losses, the decline in cable stocks like Charter Communications, and the potential impact of its coming merger with Liberty Sirius XM that will substantially increase its float.
One of the requirements for a company in the Nasdaq 100 is to maintain a market value equal to at least 0.1% of the entire index. If an index constituent fails to maintain that weighting for two straight months, it can be dropped, according to the index's published methodology.
"Any security that fails to maintain a weight of at least 0.10% for two consecutive month-ends will be replaced, subject to the availability of a replacement security with a larger market capitalization," the index methodology states.
The Nasdaq 100 index now has a market value of nearly $23 trillion, and Sirius XM's market value is $10.1 billion, meaning that the company is closer to 0.05% of the index.
It's unclear whether Sirius XM will be dropped at the quarterly rebalancing later this month.
In a client note in May, Citi analyst Jason Bazinet wrote that the "company recognized there may be risk of the equity" being removed from the Nasdaq 100. Bazinet had hosted investor meetings with several media companies in May and summarized key points in a client note.
Nasdaq wouldn't comment on the potential Sirius action, which has been the subject of Wall Street speculation. That speculation may have contributed to recent weakness in the stock, which is down about 15% in the past month. Sirius XM declined to comment.
If Sirius XM is dropped, there could be index-related selling from ETFs like the $270 billion Invesco QQQ Trust and other funds that track the Nasdaq 100 index.
It has been estimated that there could be selling of 75 to 100 million shares of Sirius XM, or 2% to 3% of its shares outstanding, from index funds if the company is dropped from Nasdaq 100.
There has been a thin float in Sirius XM stock since Liberty Media owns about 84% of the company, an interest represented by the Liberty Sirius XM Holdings $(LSXMA)$ tracking stock.
Sirius XM and Liberty Sirius XM are set to combine early in the third quarter based on a deal reached in late 2023. One goal of that combination is to make Sirius XM eligible for inclusion in some indexes since its low float has impeded that.
Now it may drop out of one before that deal even happens.
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 12, 2024 15:45 ET (19:45 GMT)
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