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Why AMC Networks Stock Dropped 16% in February

By Jeremy Bowman - Mar 6, 2020 at 5:41PM

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Shares of the cable network sold off after a disappointing earnings report.

What happened

Shares of AMC Networks (AMCX 8.73%) slipped again last month as the parent of cable networks like AMC, SundanceTV, BBC America, and IFC posted disappointing results in its fourth-quarter earnings report. The report came out the same week that stocks were plunging on coronavirus fears, which may have added to the sell-off in AMC Networks stock.

According to S&P Global Market Intelligence, the stock finished February down 16%. As you can see from the chart below, most of its losses came during the last week of the month, as the earnings report came out and the broader market tumbled on coronavirus fears.

^SPX Chart

^SPX data by YCharts.

So what

Shares of the entertainment company fell 8% on Feb. 26 after its report came out. AMC saw revenue tick up 1.6% to $785 million, which was ahead of estimates for $773 million. Growth in the international market compensated for a 0.6% decline in revenue at its National Networks, which generated nearly three-quarters of revenue. The problems came further down the income statement, as adjusted operating income fell 9% to $200 million. In National Networks, adjusted operating income dropped 13% due to higher programming costs and lower revenue from the cable ecosystem, though it did increase revenue from content licensing.

A woman puts a bucket over the head of a zombie in a Walking Dead scene.

A scene from The Walking Dead. Image source: AMC Networks.

On the bottom line, it reported a per-share profit of $1.69, down from $1.92 a year ago, and missing estimates of $1.76 a share.

The company has invested in targeted streaming platforms like Sundance Now and Urban Movie Channel, and has grown that business to 2 million subscribers, but the core cable business appears to be stagnating despite the company's award-winning programming like The Walking Dead and Killing Eve. In its guidance, AMC Networks said revenue and adjusted operating income would decline by single digits in 2020.

Now what

The stock fell another 12% over the first week of March, indicating that investors believe it could be impacted by coronavirus-related issues. While it doesn't seem like it would be directly affected by an outbreak, if a recession hits, that could cause more Americans to cancel their cable subscriptions to save money.

Still, AMC Networks shares look dirt cheap at a price-to-earnings ratio of less than 4 (based on 2020's expected earnings per share). While management seems committed to its growth plan in international markets and with streaming, the stock would benefit from accelerated share buybacks. AMC also looks like a potential buyout opportunity for a larger entertainment company, especially one looking for more streaming content like AT&T or Comcast.

The company has $489 million remaining on its current buyback authorization, $816 million in cash on its balance sheet, and a market cap of just $1.5 billion.

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