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AMC Networks doesn't make killing in first day as public company

July 1, 2011 |  2:24 pm

KILLING

Looks like Wall Street had a similar reaction to AMC Networks Inc.'s first day as a public company as critics did to the much-maligned season finale of AMC's murder mystery "The Killing."

AMC Networks -- parent of cable channels AMC, WE, IFC and Sundance -- closed its first day as a public company at $39.85 a share, down 8.3% from the $43.50 price that shares were issued at Friday morning.

Cable programmers are usually viewed as hot commodities by Wall Street. However, AMC Networks, which was spun off by New York-based cable operator Cablevision Systems Corp., has some red flags, according to Wall Street analysts.

For starters, unlike two other publicly traded programming companies -- Discovery Communications and Scripps Networks Interactive Inc. -- AMC Networks doesn't make or own big stakes in much of the programming that it carries on its channels. AMC's biggest shows include "Mad Men" and "Breaking Bad," both of which are from outside studios. That, wrote Barclays Capital analyst Anthony DiClemente, "places the company at a disadvantage" when negotiating carriage deals with distributors.

Furthermore, DiClemente thinks that AMC and WE, the two biggest channels of the company, are already getting too much money from distributors in license fees and that the future revenue growth will be modest.

"Based on our analysis, AMC and WE are 25% above market on their affiliate fee deals, while networks like HGTV, Food Network, Investigation Discovery and Nickelodeon are significantly below market," he said.

There is a school of thought that AMC Networks will be a takeover target. The Dolan family, which holds the majority of stock in Cablevision, also has the majority of voting shares in AMC Networks. While  family members may be looking to sell, their large stake should discount the stock price, some analysts feel. Furthermore, the Dolans are notoriously tough negotiators and can be hard to read by Wall Street.

Not everyone is down on AMC. While DiClemente has a target price of $32 per share, BTIG analyst Rich Greenfield issued a report this week with a target price of $50 for AMC Networks. BTIG anticipates several potential suitors for the programmer, including Comcast's NBCUniversal and Time Warner. Of course, those companies already own substantial cable programming holdings and may not feel a need to add four smaller networks.

As for the Dolans, Greenfield wrote that the family has been "far more investor friendly over the past couple of years than in the prior two decades." 

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-- Joe Flint

Photo: A scene from AMC's "The Killing." Credit: Chris Large / AMC.

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