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Why AMC Networks Stock Gained 19% in May

By Jeremy Bowman – Jun 8, 2020 at 5:44PM

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An earnings report and a potential takeover offer lifted the stock.

What happened

Shares of AMC Networks (AMCX -0.23%) were moving higher last month after the cable network operator posted a better-than-expected earnings report and rose on a rumor that Amazon could be interested in acquiring it. A broader rebound in the market and optimism about the economic recovery also seemed to lift the stock.

According to data from S&P Global Market Intelligence, the stock finished the month up 19%. The chart below shows how the stock moved higher.

^SPX Chart

^SPX data by YCharts

So what

Like other legacy cable networks, AMC had a challenging quarter with revenue falling 6.4% at $734.4 million, missing estimates at $738.9 million. Ad sales fell 11% at national networks, its core business that includes AMC, Sundance, and IFC networks, as advertisers broadly pulled back on spending when the pandemic hit. Profits fell faster than revenue as the company has high fixed costs, and earnings per share declined from $2.64 to $1.47, significantly worse than the $1.86 analysts had expected.  

A scene from The Walking Dead.

Image source: Getty Images.

Despite those financial challenges, the company saw solid growth in its streaming networks as it now expects to reach 3.5 million to 4 million subscribers by the end of the year, two years ahead of its target, and its cable networks saw viewership increase as stay-at-home orders went into place. The stock actually fell the day the report came out but then rallied over subsequent sessions.

The following week, the stock jumped 12% on reports that the company was seeking a buyout and that Amazon was potentially interested. Amazon was previously reported to be interested in AMC Entertainment, the movie theater operator, but that appeared to be a case of mistaken identity.

Now what

AMC looks like a good buyout opportunity for a company like Amazon or another streamer, as the cable network has valuable intellectual property with hit shows like The Walking Dead and trades at a dirt cheap valuation with a P/E of 4 based on 2019 profits. While the cable industry is in decline, AMC could offer an acquirer good value with its studio assets and its strong record of producing award-winning shows.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends AMC Networks and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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Stocks Mentioned

AMC Networks Inc. Stock Quote
AMC Networks Inc.
AMCX
$21.38 (-0.23%) $0.05
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.78 (-3.01%) $-3.53
AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$7.99 (1.78%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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