Value Experts Tunes in AMC Networks

10/01/2015 7:00 am EST

Focus: STOCKS

Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

My latest recommendation is a leading operator of cable TV programming under network brands including AMC, WEtv, IFC, and Sundance Channel, notes J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

AMC Networks (AMCX)—formerly Rainbow Media Holdings—was spun-off from Cablevision Systems in June 2011.

Its programming includes shows such as Breaking Bad and Walking Dead, and the spin-offs Better Call Saul and Fear the Walking Dead.

AMC’s advertising revenues have been breaking records. In 2014, the company’s US advertising revenue surged 14% compared to 1% for other TV companies.

AMC’s ad revenue is set to rise another 15% in 2015. In January 2014, AMC acquired Chellomedia, an international producer and distributor of TV programming reaching 390 million viewers in 138 countries.

In October 2014, AMC acquired a 49.9% equity stake in the cable channel BBC America.

Overall, sales surged 24% in the 12 months ended June 30, 2015, and EPS (earnings per share) climbed 19%.

Increasingly strong TV ratings for returning and new shows have bolstered growth and the recent international acquisitions will provide an additional avenue for AMC’s future growth.

I expect sales to advance 12% during the next 12 months ending September 20, 2016, while EPS will likely surge 29% to 5.40.

AMC’s P/E—based on latest 12-month EPS ended June 30, 2015—is 17.9. The PEG ratio (current P/E divided by the five-year EPS growth forecast plus the dividend yield) is favorable at 1.14.

AMC’s balance sheet is currently weak because of the heavy debt inherited in the Cablevision Systems spin-off, but cash flow is robust and will provide the means to reduce debt during the next several years.

AMC’s stock price has also been falling because of forecasts that suggested more customers are deserting cable TV than expected.

AMC’s new TV shows are receiving critical acclaim and top-notch ratings. AMC will take advantage of new streaming opportunities to reach non-cable viewers.

The current drop in AMCX’s stock price offers an excellent buying opportunity. I expect AMCX to rise 37% to my minimum sell price target of $102.09 within one to two years.

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