AMC Networks Inc. Analysis – Initial Coverage $AMCX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how AMC Networks Inc. (AMCX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): AMC Networks Inc. is a holding company, which conducts all of its operations through its majority-owned or controlled subsidiaries. The Company owns and operates various cable television brands. The Company manages its business through two segments: National Networks, which includes five programming networks: AMC, WE tv, BBC AMERICA, IFC, and SundanceTV , which are available to its distributors in high-definition and/or standard-definition formats, and, International and Other, which principally includes AMC Networks International, the Company’s international programming businesses consisting of a portfolio of channels in Europe, Latin America, the Middle East and parts of Asia and Africa; IFC Films, the Company’s independent film distribution business; AMC Networks International – DMC (formerly Chello DMC), the broadcast solutions unit of certain networks of AMC Networks International and third party networks; and various developing on-line content distribution initiatives.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of AMCX

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 3.66
MG Growth Estimate 15.00%
MG Value $141.01
Opinion Undervalued
MG Value based on 3% Growth $53.11
MG Value based on 0% Growth $31.13
Market Implied Growth Rate 5.97%
Current Price $74.87
% of Intrinsic Value 53.09%

AMC Networks Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of dividends, the short history as a stand-alone company, and high PEmg ratio.  The Enterprising Investor is concerned by the level of debt relative to the net current assets as well as the lack of dividends.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.91 in 2011 to an estimated $3.66 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.97% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on AMC Networks Inc. (AMCX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

AMCX Charts - August 2015

Net Current Asset Value (NCAV) -$39.87
PEmg 20.44
Current Ratio 1.81
PB Ratio -28.42
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Total Current Assets $1,386,491,000
Total Current Liabilities $765,687,000
Long-Term Debt $2,638,514,000
Total Assets $4,109,610,000
Intangible Assets $1,289,671,000
Total Liabilities $4,302,270,000
Outstanding Shares 73,128,000

Earnings Per Share History

Next Fiscal Year Estimate $4.61
Dec14 $3.58
Dec13 $4.00
Dec12 $1.89
Dec11 $1.79
Dec10 $1.16

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.66
Dec14 $2.95
Dec13 $2.35
Dec12 $1.34
Dec11 $0.91
Dec10 $0.39

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This is not investment advice and all readers should speak with a registered investment adviser prior to making any investment decision.  ModernGraham is not affiliated with the company in any manner.


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