AMC Networks (AMCX, Financial) is in the right spot to benefit from a shift in digital content delivery with AMC Premiere and partnerships with applications that solicit consumers with cord cutting.
AMC Networks is an important cornerstone to many digital applications that show live television. Providers like Sling, FuboTV, YouTube and Playstation Vue all list AMC on their basic channel lineup. Thus, even if consumers switch from Sling to YouTube because one offers a better deal, AMC's content will still be consumed.
The company has also made a strong play to build its own subscribership with AMC Premiere, which is currently available only for paid television subscribers. However, the ability to watch shows ad free is a major draw for many viewers. Down the line, with enough clout, that could help AMC Premiere pivot into standalone service similar to HBO Now.
With a number of cable networks, including flagship AMC, WE tv, BBC America, IFC and SundanceTV, AMC reaches more than 94 million pay-TV households in the U.S., making it the most widely distributed channel. As internet-based live-TV platforms continue to gain momentum, with both subscriber and viewing time growing rapidly over the last year, AMC has already put itself in a position to capitalize on any future disruptions.
From my view, cord cutting is meaningless, and consumers won't save that much money by doing it. So long as AMC is everywhere, though, investors can sleep peacefully.
Financially speaking, AMC Networks is on track to deliver strong revenue and per-share results in 2018, and looking at current valuation metrics compared to AMC's past five years, it is difficult not to see this as an obviously attractive buying situation.
AMC (Currently)
P/E - 7.5
P/B - 20.6
P/S - 1.3
P/CF - 7.4
AMC (5yr Avg)
P/E - 17.5
P/B - 70.1
P/S - 2.3
P/CF - 11.3
S&P 500
P/E - 21.0
P/B - 3.3
P/S - 2.3
P/CF - 14.1
AMC Networks is looking for earnings per share to surpass $8 this year and extend beyond $9 per share next year. Even if the industry or overall market experiences a downturn, the end-user will still consume content. In fact, during recessionary periods, it's very likely that they will consumer more content.
The risk for investors comes down to content value. AMC's top show, The Walking Dead, has seen ratings and viewership plummet over the last two seasons. And, with its main character (Rick Grimes played by Andrew Lincoln) only having two episodes left, it's a toss up as to whether TWD will last much longer. Nine years is a long time for a show on any channel to be on air, outside of Law and Order or The Simpsons, which means AMC needs to get some hot new shows in its pipeline. That is the only way to enhance long-term shareholder value.
Thankfully, some of its other shows have gained in popularity, such as Preacher, Into the Badlands, Better Call Saul and Lodge 49.
From a valuation standpoint, the outlook for 2019 puts the earnings per share above $9, which at 10x would put the stock at $90. If that price multiple were to rise to AMC's historic average, its stock could trade well above $150 per share. Given its durable competitive advantage and current trading price below $60, I can see why Leon Cooperman (Trades, Portfolio) continues to hold over 2.7 million shares. At this price it's a major bargain.
Disclsoure: I am not long or short AMC Networks.
