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Why AMC Networks Stock Was Gaining Today

By Jeremy Bowman – Updated Jul 9, 2020 at 3:46PM

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Shares of the cable network operator gained on news it might seek to be acquired.

What happened

Shares of AMC Networks (AMCX -3.15%), the cable network operator, were climbing today on reports that the company was hiring advisors to potentially seek a sale.

As a result, the stock was up 4.6% as of 1:51 p.m. EDT after gaining as much as 12.9% earlier in the session.

A woman puts a bucket over the head of a zombie in the TV show The Walking Dead.

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

So what

M&A reporting outlet CTFN said that AMC Networks was working with Morgan Stanley to explore M&A options, including a potential sale. The news follows similar reports in May, when CTFN said that AMC Networks was looking into selling itself.

The share price of the parent of AMC, IFC, and Sundance has plunged during the pandemic, and the company has been left out so far in the wave of consolidation that has swept the industry. That includes the recent merger of Viacom and CBS, Discovery's acquisition of Scripps media business, and Walt Disney's takeover of Fox. Given those circumstances and a sharp decline in ad revenue during the pandemic, it's not surprising that AMC would be seeking a buyer. Earlier in the spring, Amazon was reportedly interested in a takeover of the company, and a number of buyers could be interested in its library of critically acclaimed content and low price tag.

Now what

The fact that the stock's pop withered so quickly might show that investors aren't taking the M&A rumors very seriously. However, AMC Networks does seem like an appealing takeover target for both traditional cable networks and streamers. Its valuation is only slightly above $1 billion, making it a relative bargain, it is solidly profitable, and it trades at a trailing P/E ratio of just around 4.

The stock is down 40% year to date, and with cable audiences continuing to dwindle, finding a buyer seems to be AMC's best option.

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 and Walt Disney. The Motley Fool owns shares of and recommends Amazon and Walt Disney. The Motley Fool recommends AMC Networks and recommends the following options: long January 2021 $60 calls on Walt Disney, short July 2020 $115 calls on Walt Disney, long January 2022 $1920 calls on Amazon, and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.

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