Analyst Downgrades AMC Networks Stock Rating to 'Neutral,' Citing Content Costs
"We worry that the continued shift of AMC networks’ schedules from licensed to owned originals will pressure cash flow conversion," says Michael Nathanson.
MoffettNathanson analyst Michael Nathanson on Wednesday downgraded his stock rating on AMC Networks from "buy" to "neutral," citing higher content costs in the company's latest earnings report.
He cut his price target on the cable networks operator by $5 to $67.
The company, led by CEO Josh Sapan and home of The Walking Dead, Mad Men and Breaking Bad home AMC, saw its stock drop after its first-quarter earnings report.
"Despite our best attempts to analyze their cost drivers, we are concerned that the first quarter's $43 million increase in national network programming expenses remains inexplicable," he wrote in a report. "We worry that the continued shift of AMC networks’ schedules from licensed to owned originals will pressure cash flow conversion as upfront program investments cycle through and hits becomes increasingly harder to come by."
Added Nathanson: "Given the looming ramp in original scripted hours and the company’s unwillingness to provide greater cost detail, we have limited confidence that 2014 national network margins will improve...We fear that any future failures, especially on lower-rated WeTV and Sundance Channels, will lead to writedowns."
Nathanson also cited difficult earnings comparisons due to such hit shows as Breaking Bad. "As so often happens in Hollywood, success breeds imitation…and tough compares," he wrote.