Buy, Sell or Hold: AMC Networks (AMCX) and Walt Disney (DIS)

In the entertainment industry, macroeconomic challenges have been impacting consumer discretionary spending. There is also fierce competition within the video-on demand streaming segment. Let's see if AMC Networks and Walt Disney are worth buying, selling, or holding. Continue reading ....

Recent macroeconomic challenges have put immense pressure on the entertainment and media industries. Inflation has been high and persistent for the last year, which has discouraged consumers from spending on leisure activities. The industry also suffers from intense competition to attract streaming service subscribers.

The entertainment industry will continue to grow and expand in the future, despite macro-economic uncertainty. This is due to the high demand for online content. Investors could therefore hold AMC Networks Inc.(AMCX) until a better price is reached to enter this stock. Alternatively, avoiding The Walt Disney Company's (DIS) struggling stock could be prudent now.

Since last year, macroeconomic forces have led to an increase in production costs, a decline in ad revenue, and the loss of hundreds of millions of dollars of value for entertainment and media companies. It is dependent on the willingness of consumers to spend money on entertainment. This has been teetering since the inflation rate reached its historical high in June 2022.

The Consumer Price Index (CPI), which excludes volatile food and energy prices, rose just 0.1% monthly in May. This brings the annual rate to 4% compared to 4.9% in April. Core inflation, which excludes volatile energy and food prices, increased 0.4% each month and was 5.3% higher compared to a year earlier.

Morning Consult data shows that consumers have cut back more on entertainment expenses such as video games and movie tickets than subscriptions in the last year.

In 2023, streaming services, social networks, and gaming will continue to enable and shape new business models in the entertainment industry. In the U.S., subscription video-on demand (SVOD), or streaming video services, finally overtook cable and broadcast television last year.

In addition, major U.S. providers now have global footprints and several entertainment companies have launched domestic SVOD services. The costs of operating are high and the competition to attract subscribers is fierce. In light of the unpredictable economic climate and high cancellation rates, many U.S. streaming services offer cheaper, "as-supported" tiers.

According to a Fortune Business Insights report, the global market for video streaming is expected grow at a CAGR of 19.3%, reaching 1.90 trillion dollars by 2030. Global internet connectivity and the popularity of OTT media services, as well as social media platforms and other online media should drive the market to growth.

Investors could add AMCX on their watch list and wait for a more favorable entry price in this stock.

Let's examine the fundamentals behind these stocks in depth.

Stock to Hold

AMC Networks Inc.

AMCX is a video entertainment company that owns, operates and distributes a range of products to the public and provides a platform to distributors and advertisers both in the United States as well as internationally. The company is divided into two segments: Domestic Operations and International and Others. AMC+ is one of its brands. Acorn TV and Shudder are among the brands.

AMCX's non-GAAP forward P/E is currently 1.65x. This is 88.6% below the industry average 14.47x. AMCX's forward EV/Sales is also 43.6% less than the industry standard of 1.83x. The stock's Price/Sales Multiple of 1.16, which is the forward multiple for the stock, is 85.1% less than the average industry price/sales multiple.

AMCX’s EBIT margin for the trailing 12 months of 18.74%, is 119.9% greater than the industry average EBIT margin of 8.52%. The EBITDA margin for the trailing 12 months is 22.30%, which is 23.4% more than the average industry of 18.08%. The stock's ROTC trailing-12 months of 8.59% was 124.5% greater than the industry average of 3.83%.

AMCX revenues for the first quarter ending March 31, 2023 increased 0.7% from last year to $717.45 millions, driven primarily by higher distribution and other revenue, partially offset by lower advertising revenue. The adjusted operating income of $216 million was up 2.2% compared to the previous year. The adjusted operating income was boosted by significant cost savings.

AMCX stockholders' adjusted net income increased by 3.4% over the past year to $114.73 millions, and adjusted EPS was $2.62. This is a 3.2% increase.

Analysts expect AMCX to have a revenue of $2.90 billion for its fiscal year ending December 2023, a 6.4% decrease from the previous year. Analysts expect AMCX's current-year EPS to drop 23.9% from last year to $7.01. AMCX is also expected to see its revenue and earnings per share for fiscal year 2024 decrease by 0.3% and 1.2%, respectively, from the previous year, to $2.89billion and $6.93.

AMCX shares have fallen by 4.3% in the last month and 19.8% for the past six-month period to close at $11.61 on the last trading day.

AMCX’s mixed fundamentals can be seen in its POWR ratings. The stock's overall rating is C, which in our proprietary system translates into Neutral. The POWR ratings are calculated using 118 factors. Each factor is weighted optimally.

AMCX is rated B for Value and quality. It is rated C for Growth. The stock is ranked 6th out of 13 stocks within the Entertainment - Media Producers sector.

Click here to access AMCX Sentiment, Momentum and Stability ratings.

DIS is a global entertainment company. Disney Media and Entertainment Distribution and Disney Parks, Experiences, and Products are the two main segments of the company. It produces and distributes episodic television and film content and operates television channels under ABC, Disney and the Star, FX and Fox brands.

DIS' non-GAAP forward P/E ratio of 22.63x, is 56.5% greater than the average industry of 14.47x. The stock's EV/EBITDA forward multiple of 13.94, is 66.6% more than the industry standard of 8.37. The stock's 1.82x price/sales multiple is 56.2% more than the average industry 1.16x.

DIS's trailing-12 month gross profit margin is 33.04%, which is 33.4% less than the industry average (49.59%). The stock's EBITDA and FCF margins for the trailing 12 months are 14.56%, and 6.02%, respectively, compared to industry averages of 18.08%, and 7.35%.

DIS's costs and expenses for the second quarter ending April 1, 2023 increased 10.7% over the previous year to $19.54 Billion. The company's earnings after taxes, excluding some items, decreased 9% over the past year to $1.92 Billion, while its earnings per share (EPS), excluding these items, was $0.93. This is a 13.9% decline.

Cash and cash equivalents stood at $10.40 billion on April 1, 2023 compared to $11.62billion as of October 1. 2022.

The stock price has dropped 7.4% in the past 12 months to $88.83.

DIS' POWR ratings reflect this bleak forecast. The stock is rated D in our proprietary system, which is equivalent to a sell.

DIS is rated D for Momentum. The stock is ranked 9th out of 13 stocks in the same industry.

In addition to the above ratings, we have also given DIS ratings for Value, Stability and Sentiment. We've also rated it on Growth, Quality and Growth. All DIS ratings are available here.

Steve Reitmeister, an investment pro, sees the return of bear markets. He has created a portfolio that will not only survive the downturn, but thrive in it!

DIS shares dropped $0.37 (-0.42%), in premarket trade on Thursday. DIS shares have gained 2.24% year-to-date compared to the S&P 500 benchmark index's 14.97% increase during the same time period.

Mangeet K. Bouns

Mangeet became a financial journalist and investment researcher because of her keen interest in the stock markets. Mangeet uses her fundamental approach for analyzing stocks to help investors make informed decisions.