Nasdaq 100 rebalancing fuels swings in Sirius XM shares as analysts downgrade

(Bloomberg) – A likely reweighting of Sirius XM Holdings Inc. in the Nasdaq 100 adds another twist to the stock’s wild moves as the market stabs through an unprecedented short squeeze.

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The New York-based satellite radio company fell 10% on Friday, a day after posting its biggest gain since 2009. The stock has soared more than 90% in the past month – at least in part due to a weak liquidity rally in the heavily shorted stock.

An off-cycle rebalancing of the Nasdaq 100 is also boosting demand for Sirius XM shares — exacerbated by its relatively small float, according to Jeffrey Wlodarczak, analyst at Pivotal Research Group. The index redesign is set to go into effect on Monday and is expected to bolster the presence of smaller members.

In total, stocks have reached a level of valuation that is “very difficult, fundamentally, to justify,” Wlodarczak wrote in a Friday note.

Seaport Group’s Wlodarczak and David Joyce were among at least four analysts followed by Bloomberg to lower their rating on the stock on Friday.

The recent jump also creates an explosion in equity spread with Liberty Media Corp-Liberty SiriusXM stocks. Liberty Media, chaired by billionaire John Malone, owns more than 80% of Sirius XM Holdings.

Liberty SiriusXM, the follow-up stock, is trading at a 60% discount to its estimated net asset value, according to Seaport. This contrasts sharply with a year-to-date average of 33%, excluding last week’s move.

This is a headache for traders who have been playing a so-called pair swap between the two units, which requires going long on Liberty SiriusXM and shorting Sirius XM.

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