AMC Networks (AMCX) is a media company that owns cable channels, including AMC and BBC America. It’s also the channel responsible for some of the most iconic television shows of the past two decades, including Mad Men and Breaking Bad.
AMC is a deep value play currently trading at an 5-6x EV/EBIT and 50% FCF yield that offers a near-term catalyst in the form of a 20% buy-back program over the next month. Combined with the fact that ~20% of the float is currently short, there is the potential for a rapid rise in price.
AMC Networks (AMCX): The decline of television
The major concern of cable companies is the trend of cord cutting and the rise of streaming services. I am not here to argue against this trend — I think it is one that will continue to prove itself true in the coming years. AMC, however, is doing a reasonable job of adjusting to this new medium, and it is still in fairly good financial health. Let’s unpack both of these points further:
- The transition into streaming
- AMC currently has niche programming that is available via streaming video on demand (SVOD). AMC currently projects its five SVOD programs will have between 3.5-4million subscribers at $5/month. Assuming it hits the lower end of that estimate brings AMC an addition $210 million of revenue, good for over 16% of its current market cap. By comparison, Disney+ has over 60 million subscribers. While AMC’s SVOD caters only to niche audiences, that may be enough. SVOD is not meant to compete against Netflix or Disney+; it’s meant to complement these other streaming services. During the Q2 call, AMC noted that 80% of its SVOD subscribers also subscribe to a mainstream streaming service
- Financial Viability
- Revenue has continued to grow in the sub-5% clip, YoY pre-Covid. Revenue is down this year due to decrease in ad spending, though it is reasonable to expect an uptick due to Election season. The company has also earned in the neighborhood $6-7 per share in the past three years, though numbers are again down Q1 and Q2 2020 ($1.47 and $0.28, respectively). The company has ~$800 million in cash, but it also has $2 billion in net debt. However, the company has consistently earned their market cap in free cash flow for the past few years, and I don’t view this debt as a major risk.
AMC Networks (AMCX)’s catalyst
The company announced a $250 million share buyback (all in cash) this past week that will be completed in the coming month, which represents about 20% of all shares outstanding. Combine this with the fact that ~20% of the current float is short, and you have the potential for a major short squeeze.
Should AMC Networks (AMCX) a reliable investment?
Shares of AMC Networks (AMCX) appear to be a very good investment option, the Money Midnight Indicator is expecting its price to increase considerably in the next several months. The majority of the metrics point to this investment being highly attractive.