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AMC Networks, Dish Shares Rise to 52-Week Highs As Analysts Laud Legal Settlement

Dish Logo AMC logo Split - H 2012

Davenport & Co. analyst Michael Morris says the legal settlement was "good for both companies" and consumers.

The stocks of AMC Networks, controlled by the Dolan family that also owns Cablevision Systems, and Charlie Ergen's Dish Network rose in early Monday trading to set new 52-week highs following a legal settlement announced on Sunday.

As of 9:40am ET, AMC Networks shares were up 2.8 percent at $46.82, setting a new 52-week high that trumped the previous high of $46.69,while Dish was up 1.8 percent at $36.11, which set a new 52-week high following one established at $36.01 late last week amid expectations of a possible settlement.

Wall Street analysts said the settlement would lift an overhang for both stocks and do away with worst-case scenario fears of investors. In the legal case, AMC Networks had asked for damages of $2.5 billion plus interest of an additional $1 billion. Analysts said the final figures came in below that for AMC Networks, but most had seen a deal that would combine a cash payment and channel carriage - as the one announced on Sunday - as less likely than other scenarios.

Barclays Capital analyst Anthony DiClemente argued in a report that the legal settlement "includes both cash and carriage for AMC Networks, a positive for the company." He added: "Most importantly, the settlement lifts an overhang on shares that should allow investors to focus on what we believe are improving fundamentals for the business, including an affiliate fee re-pricing opportunity, ratings momentum for the Walking Dead and possible return of capital."

He reiterated his "overweight" rating on AMC Networks shares and raised his price target by $2 to $50. The analyst had expected $200 million-$1 billion in total cash payments in the settlement. "After adjusting for taxes and [a] 50/50 split with Cablevision, we estimate the cash settlement is worth roughly $215 million, or $3 per share, to AMC," he said.

Stifel, Nicolaus analyst Ben Mogil highlighted the resumption of carriage of all networks, including two channels that Dish hadn't previously carried, which he called "positive." He wrote: "We view the deal as very favorable as we had modeled out scenarios where AMC was able to garner a cash settlement or carriage, but not necessarily both.

Susquehanna International Group analyst Vasily Karasyov echoed those notions, raising his price target on AMC Networks by $2 to $53 and reiterating his "positive," or "buy," rating.

Davenport & Co. analyst Michael Morris said the legal settlement was "good for both companies" and consumers. For the cable networks company that is the home to such channels as AMC, IFC and Sundance Channel, "the return to Dish should only support further ratings improvements in the coming month and year," he said in maintaining his "buy" rating and $51 price target on AMC. 

"We anticipate a healthy dispute as to who “won,” although we view this as a bit of a fool’s errand," Morris said. "Dish/Ergen fans will highlight that the $700 million payment was significantly below the $2.5 billion in damages sought by Voom and included the acquisition of additional licenses. Dolan cynics will note that allocation of the cash proceeds is undisclosed and therefore more likely to be allocated to benefit the family rather than the companies."

But he concluded: "We view this as another step in the positive operating momentum for AMC Networks - we believe that the long-term carriage agreement was at a step up to the prior fee level and was not contemplated in the company’s disclosure that 41 percent of subscribers would be up for renewal by 2014. As such, we don’t believe higher rates for these subscribers are reflected in the consensus model, though we are unlikely to see the impact until fourth-quarter earnings are reported in early 2013."

ISI Group analyst Vijay Jayant said for Dish, the settlement was "better than expected." He explained: "I think investors thought it was going to be $1 billion. It's generally good for all." Asked before the market open whether Dish's stock should rise on Monday, he said: "It was up a lot last week in anticipation."

Credit Suisse analyst Stefan Anninger also highlighted the deal as a "positive outcome for Dish...given that Dish’s weak legal position in the case and AMC-Cablevision’s claim could have amounted to about $3 billion in cash with interest." He maintained his "outperform" rating and $38 price target, saying most of the news should be priced into the stock. "All in all, however, we think Dish shares will like [the] news," he said.

Evercore Partners analyst Alan Gould on Monday also slightly raised his AMC price target to $43. "We consider it positive to AMC that a settlement has been reached with Dish, but are not changing our rating given the almost 10 percent rise in the stock price last week reflecting how well the trial was going for AMC and the strong season premiere for The Walking Dead," he said. "The positive is that AMC is now in a better position for other affiliate negotiations now that Dish has been renewed."

Several years ago, Cablevision sold its Voom satellite to the predecessor company of Dish, which agreed to carry HD channels created for Voom for 15 years as long as the Dolans' company invested $100 million per year into the Voom service. Dish at one point said that was not the case and ended its carriage of the Voom networks.

AMC argued that the legal dispute drove Dish to also stop carrying the AMC Networks channels as of mid-year. However, Dish had said it simply wasn't willing to pay the carriage fees and argued the networks don't draw many viewers among its subscribers.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai