'Walking Dead': Analyst Removes AMC Networks From Best Stock Ideas List on Weaker Ratings

Gene Page/AMC

"Ratings pressure" on the hit drama "will weigh on overall reported ratings and will ultimately temper ad growth," says Guggenheim's Michael Morris.

Guggenheim Securities analyst Michael Morris on Wednesday cut his price target on the stock of AMC Networks and removed it from the first list of best stock ideas, citing weaker ratings for the new season of The Walking Dead and its companion show.

His updated price target of $83 is down from $90.

"Through the first two weeks of their current seasons, The Walking Dead (season six) and The Talking Dead (season four) have recorded live ratings declines of 15-20 percent in their core 18-49 demographic," Morris wrote in a report. "While it is early and there are numerous factors to consider, we cannot overlook the importance of the franchise to equity value and risk of sustained declines."‎

The analyst highlighted that competition for audiences over the past two weeks "has been stiff, with large-market MLB playoff teams (NYC, Chicago, L.A.) and a marquee NFL matchup on October 18." Still, he said ratings for returning broadcast shows have seen live-ratings declines in the mid-teens season-to-date, "which we believe reflects an ongoing consumer shift to on-demand viewing (SVOD, VOD, DVR, online)."
Overall live audiences are down 4 percent season-to-date including sports or 8 percent excluding sports, Morris noted.

About AMC Networks, he said: "We remain positive on the company's investment in original programming and expect an expanded lineup to positively impact advertising revenue in 2016. We view the AMC Networks content offering as undervalued in the traditional pay TV ecosystem and see in-season, stacked program rights as a potential incremental value creator for a distribution partner."

Despite this positive view, Morris added that "we believe ratings pressure on The Walking Dead will weigh on overall reported ratings and will ultimately temper ad growth. Despite attractive underlying content value, we do not expect the public valuation multiple to expand without ratings growth." And he added: "Sustained lower The Walking Dead ratings are likely too heavy to be offset by new programming, in our view."‎

Morris lowered his 2016 and 2017 earnings per share estimates for AMC Networks to $5.60 and $6.48, respectively, from $5.79 and $6.74, reflecting a lower advertising revenue forecast.

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