The hottest names this week were ATUS (245bps better than the S&P), DISH (237bps), WWE (182bps), AMCX (92bps), and CBS (5bps).
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With CMCSA earnings coming up next week (1/23), we provide our thoughts on the numbers, sentiment and what to do with the stocks into the print. Please see the Full PDF link below for our detailed 30 page slide deck. OK
This note details our conversations with London investors, with the biggest surprises being: 1) The skepticism regrading New DIS – particularly the value of streaming vs. long-tailed content. That said, should uncertainties become more certain, this is the one most still want to buy. 2) The tremendous pushback on CMCSA – all because of Sky. And 3) the number of requests for our ATUS and OUT models (which must be positive signs, no?). PERHAPS THE BIGGEST TAKEAWAY IS HOW IMPORTANT MANAGEMENT TRANSPARENCY AND CREDIBILITY HAVE BECOME – above and beyond the numbers and the balance sheet.
Eric, Stephan, Se and I are reintroducing our WHAT’s HOT WHAT’s NOT weekly wrap up – this being our first edition from Wolfe Research.
We went straight from our launch (check out our 252-page slide deck – which was NOT an easy feat) to a whirlwind of marketing – hitting NYC, NYC (not a typo), Boston, the Mid-Atlantic, and more NYC. Ahead of us is CT, the West Coast, NYC (again, not a typo), and then Europe (Cheers!). The biggest surprises from our first set of meetings have been: 1) The fact that just about every conversation has begun with New DIS and New FOXA (there are way more bulls than bears). 2) There appears to be significant incremental interest in OUT and ATUS. 3) There appears to be significantly more concern re. CBS & VIAB. 4) No one has pushed back on our “downgrade” of DISH (Peer Perform). And 5) Local isn’t a huge focus due to macro and leverage. BOTTOM LINE: We feel incrementally positive on New DIS, New FOXA, CMCSA, ATUS and OUT; we are worried that our positive call on VIAB might take longer to play out.
There are two camps on this stock with little in between – the longs LOVE it, and the shorts love to HATE it. On the short side, we hear – 1) the stock is up +134% YTD vs. +1% for the S&P 500. 2) All the BIG TV licensing deals were already announced – FOX and NBCU in the U.S. 3) Nothing else will move the needle. 4) Ratings softened the last 6 months. And 5) attendance is down at live events. The only point we think really holds any water is the stock performance (one of the best in ’18). Yes, ratings and attendance have been down a bit, BUT ratings don’t impact the business model AT ALL – there is no advertising, AND licensing revenue is now locked in thru 2025. Mgmt. is also aware of how to fix the problem in attendance, which by the way, is only 5% of ’20E EBITDA. Oh, and we’d mention that there could actually be upside to the “BIG” TV deals. First, we don’t think investors truly appreciate the U.K. and India deals – the 2nd and 3rd largest markets respectively, with a U.K. announcement coming any day now and India in H1’19. And while these two were called out by mgmt., we’d remind investors that “7” key deals were signed around the same time 5 years ago. If history repeats itself, we could see AT LEAST $65MM of incremental high margin licensing revenue from these key deals (on top of the $548MM guided for ’20E, which incl. ONLY the U.S. deals). And speaking of international – there’s more to that story. We haven’t even mentioned the WWE Network, the co.’s successful streaming DTC service with 1.6MM paid subs of which only 400k are international – yet of the 25B YouTube (and other platform) video views a year, 80% are international. We’re not saying international subs are going WAY higher immediately, but the opportunity is tremendous. We were masochistic enough to perform a bunch of scenario analyses on this one and we honestly just feel there is significantly more upside to numbers than downside risk. We initiate WWE with an Outperform and $95 price target.
We think AMCX is doing the absolute best it can with the assets it has. And it has been a good stock – relative to the rest of our sector(s) under coverage, +6% YTD vs. the S&P, +1%. But we’re not sure that the “as-long-as-it-isn’t-as-bad-as-expected-thestock-will-work” thesis is sustainable. We want to be clear – our call is that this stock is likely to underperform its peers next year, but we still get 16% upside from today’s price. It just isn’t enough for us to hang our hat on – we would love to see real momentum (or even stabilization) in the story from some of the really good content that AMCX has on its schedule (Better Call Saul, Preacher, Into The Badlands, The Son, Dietland, The Terror, Lodge 49, McMafia, etc.). But it still feels as if there is so much reliance on The Walking Dead (TWD) – just listen to the last earnings call or read the transcript. You know how many times TWD was mentioned in prepared remarks? We counted – it was 23. That’s way too many for me to survive a drinking game (although admittedly I am a total light weight so maybe I should say that is way too many for ERIC to survive a drinking game – he said he’s willing to find out). So relative to our expectation for its peers, we initiate on AMCX with an Underperform and $66 price target.