AMC Networks Is 'Amazing' For The Wrong Reason, Bernstein Says In Downgrade

Investors are holding “false hope of a takeout” for AMC Networks Inc. AMCX, Bernstein analyst Todd Juenger said in a scathing note Thursday.

“The market is treating all these stocks as takeout candidates. There's no identifiable moment in time when that will change, other than at some point, maybe after months of nothing happening, [but] the air will come back out of the balloon.”

The Analyst 

Juenger downgraded AMC Networks from Market-Perform to Underperform and lowered the price target from $60 to $59.

The Thesis

Shares of AMC are up 12.4 percent this year — and up 13.6 percent since the favorable AT&T Inc. T–Time Warner Inc. TWX ruling June 12.

“This re-rating has been driven entirely by acquisition premium,” said Juenger. “We think it’s unlikely AMC Networks will be acquired at a premium.”

The analyst places a $53 value on shares with a 6.75x EBITDA, and said the stock could hit $82 in the event of an acquisition. The price target was derived by weighing the two by their likelihoods, implying only a 20-percent chance of a deal.

“The standalone bear case on AMC Networks is as straightforward as it is obvious,” Juenger said.

The company is a pure-play cable network group, and Bernstein sees its profits declining 41 percent by 2025. Especially concerning is the heavy weight of “zombie” franchises in AMC’s lineup. Together, they represent 30-40 percent of the company’s linear audiences. “The Walking Dead,” one of AMC’s most popular shows, declined 31 percent just last season.

"Frankly it's amazing how well they have preserved earnings,” Juenger said. “We question how much longer that growth can sustain.”

Price Action

AMC Networks shares were down 3.49 percent at the time of publication Thursday at $65.12. 

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AMC's Future In The Post-'Walking Dead' Era: More 'Walking Dead'?

"The Walking Dead" screenshot courtesy of AMC Networks.