After its initial public offering in July 2011, the stock of cable entertainment company AMC Networks Inc. (NASDAQ:AMCX) has increased an impressive 83 percent to close ahead of its first quarter 2013 earnings announcement at around $64 per share. With such a strong price trend firmly guiding shares in the company, AMCX is within striking distance of taking out its all-time high of $66.26 per share, which was reached only a couple of weeks ago on April 23, 2013. This intriguing price action and the potential for continuing its trend to record highs make AMCX an excellent candidate for a growth stock with strong prospects as the company prepares to release its first quarter earnings report on May 9. A closer examination of AMC Networks, its high-profile investment fund sponsorship, management talent, programming successes, and key technical chart indicators provide valuable insight into the potential for AMCX to extend the remarkable gains it has achieved during its relatively brief period as a public company.
The stock of AMCX has only been trading for less than two years after AMC Networks Inc. was spun-off from its former parent company Cablevision Systems Corporation (NYSE:CVC) on July 1, 2011. During that time period, the company has attracted substantial sponsorship from several prominent hedge fund investors, in addition to the massive stake in the company owned by the family of Cablevision Systems founder Charles Dolan. AMC Networks is based in New York City and has carved out a highly successful niche in the cable entertainment industry by programming spectacularly popular original series content without the enormous promotional budgets that typically accompany such endeavors by the company's larger peers in Hollywood. AMCX has achieved ratings success beyond its small-cap stock status, which should make it the envy of many of the larger players in the media industry.
For this reason, as well as its impressive growth potential, elite hedge fund managers like John Paulson, who manages the $16 billion portfolio at Paulson & Co., and Christian Leone, who operates the $2.8 billion fund at Luxor Capital Group, are major investors in AMCX. In fact, Luxor Capital Group is investing big with its 4.4 million share stake in AMCX making it the hedge fund's third largest holding and accounting for nearly 8 percent of its investment portfolio. While Paulson & Co. is the biggest investment fund shareholder with approximately 5.9 million shares, other major players such as Blackrock hold similar sizable positions. Notably, Steven Cohen's SAC Capital substantially increased its holdings in AMCX by over a half million shares in late 2012. The presence of so much hedge fund sponsorship in a company with a relatively small $4.65 billion market cap is a clear indication that AMC Networks is a small-cap growth stock with tremendous growth potential.
Operationally, AMC Networks is unquestionably a thriving success in the realm of cable content programming, particularly in the genre of popular dramatic series television on its flagship channel. A strong combination of critical acclaim, Emmy Awards, and word-of-mouth praise fueled the high ratings of AMC Network serial dramas such as "Mad Men" and "Breaking Bad" in the years prior to the AMCX initial public offering. In late 2010, AMC hit upon its goldmine with the blockbuster horror drama series "The Walking Dead" that is now the network's top-rated show. The episodic program about zombies recently achieved the astounding success of ranking number one in the coveted 18-49 demographic for its third broadcast season. That impressive figure places "The Walking Dead" ahead of the four major broadcast networks in the 18-49 demographic for the entire season, which will likely translate into a tremendous boost for ad revenue in the forthcoming fall season. The season three finale of "The Walking Dead" sent the series into the summer hiatus with an all-time high 12.4 million viewers, including 8.1 million in the vital 18-49 demographic, which was the largest audience ever for the program that is a truly iconic contemporary pop culture phenomenon. The key element to understanding the relevance of the company's programming successes is to project how AMCX stock can potentially benefit from this enviable track record.
Hit shows on any network, and particularly on a relatively small cable channel, inevitably attract the attention of competitors. The success of creative content is a nexus of talent and comprehending trends in popular culture. With this in mind, it is clear that the executives at AMC Networks are its most valuable asset by proving their ability to deliver smash hit ratings with a relatively smaller scale media operation compared to the company's much larger competitors. Combined with the strong stock performance that seems to continue on the path to new highs, these components make AMCX a very attractive takeover target for one of the media titans searching for network programming talent and existing content properties, according to a Bloomberg article. Bloomberg speculates that Comcast (NASDAQ:CMCSA), CBS (NYSE:CBS), and News Corp. (NASDAQ:NWS) could be potential suitors for an AMCX acquisition, which would also include the company's lower-rated channels IFC, WE tv, and Sundance. Such a deal - or even confirmation that serious negotiations were underway - would likely provide a tremendous boost to AMCX's stock price. With "The Walking Dead" pulling in more viewers than the popular broadcast competition programs "American Idol," "Big Bang Theory," "Modern Family," and "The Voice," it seems reasonable that one or more major networks will be taking a close look at AMCX to determine a proper valuation and possible integration into their existing media portfolio.
Technical indicators and the chart of AMCX reveal that the stock is currently trading in a daily range right at a convergence of its 8-day and 20-day exponential averages at $63.80 and $63.66, respectively. With the 50-day EMA presently at $61.44, the stock is testing key support levels in its current upward price trend that has taken AMCX to $64.20 from a low of $37.47 per share on August 24, 2012. The 71 percent increase in that time period included three significant tests of AMCX's 50-day EMA and six tests of its 8-day and 20-day EMAs. On each occasion, the stock rallied to make new highs before pausing for another test.
AMC Networks will release its first quarter 2013 earnings on May 9, which has the potential to be an ideal entry point for the stock. After a fourth quarter 2012 earnings report that disappointed the market on February 26, the stock hit an intra-day low of $50 before rebounding powerfully to close at $56 per share. Clearly, investors took the opportunity to purchase shares at the low price in the wake of the news. Analysts have struggled to keep pace with AMCX stock as over a dozen upgrades and boosted price targets have been issued since the beginning of 2013. AMCX's current stock price is already above or nearing most analyst targets, which means a positive earnings report could trigger a series of further price target increases during the second quarter. With the stock so close to its significant exponential moving averages and already performing better than analyst target prices, this translates into an optimal time period around the May 9 earnings report to enter into an AMCX investment position.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.