Imperial Capital: Despite Stock Momentum In 2018, AMC Networks Isn't A Buy

AMC Networks Inc AMCX shares are up around 15 percent since the start of 2018, but investors shouldn't tie the stock's performance to the company's future prospects, according to Imperial Capital.

The Analyst

Imperial Capital's David Miller initiated coverage of AMC Networks with an In-Line rating and $65 price target.

The Thesis

AMC's stock has moved higher in 2018 due to M&A prospects rather than any momentum in its business, Miller said in the initiation note. (See the analyst's track record here.) 

The company is stuck in a position where it isn't technically a pure content provider, as only four series that are on air are owned by AMC Studios, the analyst said. AMC's secondary networks — including Sundance, WE Network, and IFC — aren't considered "must-have" channels in an era of consumers moving toward skinnier packages or completely cutting the cord, he said. 

"The Walking Dead," perhaps AMC's most notable owned show, appears to have peaked in 2015 when 15.8 million viewers watched the season five finale, Miller said. Season six averaged 14.2 million viewers per episode and continued to decline into season seven and eight. Now that season nine is set to start, there is not one single reason to suggest it will see a reverse in viewership trends — although it will still maintain its status as the highest-rated scripted show on linear TV, the analyst said. 

AMC had an opportunity to prove the bears wrong with "The Terror," which would have proved AMC can still generate popular content, Miller said. But with an average live HH Nielsen rating of 0.36, it is "hardly a hit by any measure" and a "disappointment" to bull investors, he said. 

AMC must demonstrate it can create new TV hits before investors consider becoming constructive, according to Imperial Capital.

Price Action

Shares of AMC Networks were trading higher by 1.37 percent at the time of publication Thursday.

Related Links:

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

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

Photo courtesy of AMC Networks.