Steven Yeun as Glenn Rhee, Lauren Cohan as Maggie Greene, and Danai Gurira as Michonne. Image credit: Gene Page/AMC.
AMC Networks' (AMCX 3.42%) stock entered today up 8.6% year to date against a 2.6% gain in the S&P 500. Will the rally continue, or is a sell-off lurking in the shadows? Much depends on how well the business performs. Here's a closer look at what analysts expect when the upstart TV and film studio reports fourth-quarter earnings tomorrow morning:
| Q4 Estimates | Revenue | YOY Growth | EPS | YOY Growth |
|---|---|---|---|---|
| Low Estimate | $590.08 million | 35.6% | $0.89 | 67.9% |
| High Estimate | $620 million | 42.4% | $1.19 | 124.5% |
| S&P CAPITAL IQ CONSENSUS | $603.14 million | 38.6% | $1.01 | 90.6% |
Source: S&P Capital IQ..
A miss wouldn't be surprising given the company's history. The good news is that AMC has topped projections in each of the past two quarters -- and by a widening margin:
| Earnings History | Q4 2013 | Q1 2014 | Q2 2014 | Q3 2014 |
|---|---|---|---|---|
| Consensus | $0.78 | $1.16 | $0.85 | $0.73 |
| Actual | $0.53 | $0.99 | $0.86 | $0.80 |
| DIFFERENCE | ($0.25) | ($0.17) | $0.01 | $0.07 |
Source: S&P Capital IQ.
Looking at the overall business, I'm watching for momentum in each of these three areas:
1. Sharp gains in ad revenue growth. With The Walking Dead back on air in the fourth quarter, it's a good bet that ad revenue for the national networks segment improved as marketers agreed to higher fees for ad spots tied to the increasingly popular zombie drama. Season 5's October premiere drew 17.29 million live plus same-day viewers, a 7.3% boost over the season 4 premiere. Anything other than a similar gain in ad sales would be a disappointment and could impact AMC's thinking on a planned spinoff. (The pilot is in the can but the show has yet to be picked up to series.)
2. A bigger mix of distribution revenue. AMC's bets on original series aren't just aimed at claiming a bigger slice of advertising revenue. Like HBO, the network is also pursuing licensing and syndication deals to earn more back-end revenue from its original productions. The strategy has worked well so far: distribution revenue improved 10.5% year over year in the third quarter. I'm hoping for accelerating gains in the fourth quarter.
3. Bountiful cash flow for paying down debt. If there's a dark side to the AMC stock story, it's the $2.7 billion in long-term debt lingering on the balance sheet. AMC needs strong, sustainable cash flow to pay its obligations and invest in future projects. (In the third quarter, cash from operations surged 26.5% to $84.1 million.)
I'm also looking for an update on timing for the The Walking Dead spinoff and guidance on how Better Call Saul is doing with advertisers bidding on spots in the scatter market. A separate update on AMC subsidiary IFC's plans for new projects in the wake of its success with Boyhood would also be in order.
AMC Networks reports fourth-quarter results on Thursday morning; check back here for our take on the report. In the meantime, leave a comment to let us know what you expect, and what you think of AMC Networks' stock at current prices.
