On Monday (NASDAQ:MNDY), Morgan Stanley (NYSE:MS) updated its assessment of AMC Networks (NASDAQ:AMCX), reducing the price target from $10.00 to $9.00 while maintaining an Underweight rating on the stock. The firm's analysis suggests that AMC Networks' efforts to integrate streaming with linear distribution deals could offer some relief against the backdrop of resetting affiliate fee pricing.
However, the company's ability to command higher prices is seen as limited due to its relatively small size in an industry that is both under pressure and in a state of transition.
The analyst's Underweight stance is rooted in AMC Networks' high exposure to challenges faced by linear television and its position as a smaller player in the market. Despite the stock trading at approximately a 50% free cash flow yield for 2025 estimates, Morgan Stanley sees little potential for a re-rating. Concerns are also heightened by declining revenue trends, which cast doubt on the long-term stability of the company's free cash flow.
AMC Networks' third-quarter results for 2024 further highlighted the difficulties faced by the company, with affiliate revenues falling by 13% and advertising revenues decreasing by 9-10%. This performance was in line with Morgan Stanley's expectations, which had anticipated a 12% decline in affiliate revenues and a 9% drop in advertising.
On a more positive note, streaming subscription revenues increased by 7%, although this was lower than the expected 9% growth, possibly due to the timing of new subscriber additions during the quarter and an increasing shift towards lower-priced, ad-supported subscribers.
The company's full-year guidance remains steady with projected revenues of around $2.4 billion and EBITDA between $550 million and $575 million. These figures reaffirm the ongoing financial challenges AMC Networks faces as it navigates a competitive and evolving media landscape.
In other recent news, Charter Communications (NASDAQ:CHTR) and AMC Networks have fortified their partnership with a multi-year distribution agreement. This strategic move not only ensures AMC Networks' linear channels' continuous availability for Charter's Spectrum customers but also enhances the Spectrum TV Select package by integrating AMC+ streaming service without extra charges.
The deal aims to enrich Spectrum subscribers' experience by incorporating premium streaming content into traditional cable packages. Moreover, Charter will extend AMC+ as a standalone purchase for its internet-only customers, broadening the service's accessibility.
In related developments, AMC Networks reported its second-quarter results, with revenues exceeding expectations but earnings missing the mark. The company registered a revenue of $625.9 million, surpassing analyst estimates of $601.4 million.
However, adjusted earnings per share were reported at $1.24, lower than the consensus forecast of $1.52. Despite a 7.8% year-over-year decline in revenue, streaming revenue saw a 9% increase to $150 million, credited to subscriber growth and price hikes.
Looking ahead, AMC Networks reaffirmed its full-year free cash flow guidance, indicating its focus on targeted streaming services and content licensing deals to adapt to evolving viewer preferences.
InvestingPro Insights
Recent InvestingPro data aligns with Morgan Stanley's cautious outlook on AMC Networks. The company's market cap stands at $377.67 million, reflecting its position as a smaller player in the media industry. AMC Networks' revenue for the last twelve months as of Q3 2024 was $2.50 billion, with a concerning revenue growth decline of 16.57% over the same period.
InvestingPro Tips highlight that AMC Networks is trading at a low Price / Book multiple of 0.34, which could indicate undervaluation. However, this should be considered alongside the fact that two analysts have revised their earnings downwards for the upcoming period, and analysts anticipate a sales decline in the current year. These tips corroborate Morgan Stanley's concerns about the company's revenue trends and long-term free cash flow stability.
Despite these challenges, InvestingPro data shows that AMC Networks remains profitable, with a P/E ratio of 10.87 and an adjusted P/E ratio of 2.02 for the last twelve months as of Q3 2024. This profitability, coupled with liquid assets exceeding short-term obligations, suggests that the company maintains some financial resilience in the face of industry headwinds.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights, with 5 more tips available for AMC Networks on the platform.
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