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Why 'The Walking Dead' Bear Case For AMC Networks Is Dead Wrong

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Why 'The Walking Dead' Bear Case For AMC Networks Is Dead Wrong

CLSA believes AMC Networks Inc (NASDAQ: AMCX) could deliver revenue growth and adjusted operating cash flow in the second half of the current year. Analysts Vasily Karasyov and Andrew Minora are not worried about the fading audience of "The Walking Dead."

The brokerage sees Conviction estimates to increase in 2017 and argues the future impact of "The Walking Dead" is not understood correctly.

The analysts project AOCF of $36 million once the show completes its ninth season. Therefore, the analysts reiterated their Buy rating with a target price of $89 on the company's shares.

The analysts pointed out the following bear case factors:

  • "The Walking Dead" has crossed its peak.
  • No replacement show exists with comparable metrics.
  • Revenue and AOCF will struggle for growth.

The brokerage pointed to the first-quarter advertising revenue to support its argument that revenue and AOCF would grow. Ad revenue rose 1 percent despite the year-ago quarter had two more episodes of "Better Call Saul" and the the 90-minute "Walking Dead" season finale.

Related Link: Does AMC Networks Need To Fear The Declining Ratings?

"Assuming $2 million in advertising per BCS episode and 36 national spots for TWD at $400,000 each implies that on a comparable basis advertising revenue grew 8 percent, while TWD A18-49 viewers (Live +3) were down 11 percent," the analysts told clients in a research note.

The brokerage does not believe the bears' argument that profitability would drop and that the terminal value would be impaired once the show ends its run. CLSA sees loss of ad revenue as the only factor to impact AOCF on a year-over-year basis. Secondly, the series is an in-house show. Therefore, there is no change in the margin level from all revenue streams that is predicted at ~49 percent.

The analysts added, "In the remaining years of its run, costs should continue to grow but advertising is likely to fade, which means lower margin and smaller impact on AOCF."

AMC was up 1.18 percent at time of writing, seen trading at $51.12.

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Latest Ratings for AMCX

DateFirmActionFromTo
Nov 2020Morgan StanleyMaintainsEqual-Weight
Oct 2020JP MorganDowngradesNeutralUnderweight
Jul 2020Goldman SachsInitiates Coverage OnSell

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