This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Stock Behind TV's Best Has Near-50% Upside

It's now possible to see the results of the network's growing popularity among advertisers. Last year, AMC Networks brought in $1.2 billion in revenue, up 57% from 2007. Profits were up even more sharply and have jumped more than eightfold from $0.22 to $1.79 per diluted share.

Analysts project steady revenue growth of about 8% in each of the next two years, and earnings per share of $2.24, a growth of more than 25%. They project another 25% bump in 2013 to $2.79 per share.

It's important to note that reported earnings generally understate the true profit-generating potential for media firms. It's crucial for AMC to create new programs consistently, and they require heavy upfront costs. They also represent a competitive advantage that smaller content providers on the Internet are unable to match.

For AMC Networks, these development expenses come through as costs each year on the income statement, but the cash has already been spent. Because there's no real cash outflow, the actual free cash flow generated is actually quite a bit higher.

In 2011, for instance, AMC Networks reported $126.4 million in earnings, but free cash flow was just a hair below $240 million, or about $3.40 per diluted share. Overall then, the reported price-to-earnings ratio appears quite high at 24, but the price-to-free cash flow multiple -- which I think is the more accurate metric for viewing this company -- is more reasonable at just shy of 13. This is still above the market average multiple of 9, but AMC Networks deserves a premium because it is growing quickly.

Risks to Consider: The viewing of TV shows is still predicted to migrate to the Internet and related mobile devices, a trend that's expected to further impede on TV networks and eventually eat into cable viewership. But it has already been almost 10 years since this prediction was made, and it has yet to come true. Cable TV networks have done a stellar job of maintaining their viewership and will probably find profitable ways to migrate with its customers to the Internet.

Action to Take --> Right now, AMC Networks is expected to grow cash flow by 9% annually. I actually believe it has the potential to grow closer to 15%. This is based on the continued success of its popular series and steady growth of new, high-quality content. Management's track record of hits has certainly been impressive so far, so it has a good chance of continuing the streak.

Based on of my projected growth estimates, I find that the share price of AMC Networks is undervalued by about 45%. That means the stock could surge to $62, which I think is achievable within a couple of years.

  • 3 High-Yield Stocks for the Coming Wave of Retirees
  • A Legendary Biotech Investor Just Spent $14 Million on This Stock
  • This Emerging Market Could Go on a Major Run Very Soon
  • 2 of 2

    Select the service that is right for you!

    COMPARE ALL SERVICES
    Action Alerts PLUS
    Try it NOW

    Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

    Product Features:
    • $2.5+ million portfolio
    • Large-cap and dividend focus
    • Intraday trade alerts from Cramer
    • Weekly roundups
    TheStreet Quant Ratings
    Try it NOW
    Only $49.95/yr

    Access the tool that DOMINATES the Russell 2000 and the S&P 500.

    Product Features:
    • Buy, hold, or sell recommendations for over 4,300 stocks
    • Unlimited research reports on your favorite stocks
    • A custom stock screener
    • Upgrade/downgrade alerts
    Stocks Under $10
    Try it NOW

    David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

    Product Features:
    • Model portfolio
    • Stocks trading below $10
    • Intraday trade alerts
    • Weekly roundups
    Dividend Stock Advisor
    Try it NOW

    Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

    Product Features:
    • Diversified model portfolio of dividend stocks
    • Alerts when market news affect the portfolio
    • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
    Real Money Pro
    Try it NOW

    All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

    Product Features:
    • Real Money + Doug Kass Plus 15 more Wall Street Pros
    • Intraday commentary & news
    • Ultra-actionable trading ideas
    Options Profits
    Try it NOW

    Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

    Product Features:
    • 100+ monthly options trading ideas
    • Actionable options commentary & news
    • Real-time trading community
    • Options TV
    To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
    Submit an article to us!
    DOW 16,982.59 +22.02 0.13%
    S&P 500 1,978.91 +0.57 0.03%
    NASDAQ 4,444.9090 -4.6550 -0.10%

    Brokerage Partners

    Rates from Bankrate.com

    • Mortgage
    • Credit Cards
    • Auto

    Free Newsletters from TheStreet

    My Subscriptions:

    After the Bell

    Before the Bell

    Booyah! Newsletter

    Midday Bell

    TheStreet Top 10 Stories

    Winners & Losers

    Register for Newsletters
    Top Rated Stocks Top Rated Funds Top Rated ETFs