RBC: AMC Networks Needs More Than Zombies To Hit 2018 Targets

AMC Networks Inc AMCX has seen its stock fall more than 11 percent over the past year, and its valuation today implies investors are still "taking a cautious view" of the company, according to RBC.

The Analyst

RBC Capital Markets' Steven Cahall initiated coverage of AMC Networks' stock with a Sector Perform rating and $57 price target.

The Thesis

AMC Networks' stock trades at a "modest" 6.5x CY18 P/E multiple suggests investors aren't necessarily bullish on the company's suite of "Walking Dead" programming, which continues to see declines in ratings, Cahall said in the initiation note.

The most recent episode of "The Walking Dead" saw ratings fall 38 percent year-over-year, so the company's portfolio excluding the zombie franchise needs to grow its ad revenue by 1 to 2 percent to achieve 2018 estimates, according to RBC. While this might be feasible, it is also "far from certain," Cahall said. 

AMC Networks' status as a "top-notch content creator" is unchanged and implies an "inherent value" as a potential take-out target, the analyst said. But there is no credible reason to believe a take-out is imminent, and management likely wants to appreciate the stock organically before it sells itself, he said. 

AMC's past performance "suggests they'll have another huge hit show in the coming years" or a deceleration in ratings declines, "and while we don't see it arriving in 2018, we're watching for the inflection point," Cahall said. 

Price Action

AMC Networks shares were down 0.52 percent at the close Wednesday.

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