Friday’s Top Upgrades (and Downgrades): AMC Networks Inc (AMCX), Activision Blizzard, Inc. (ATVI)

Result: AMC costs only eight times annual free cash flow today. On a growth rate that most analysts agree could exceed 20% annually over the next five years, that’s insanely cheap. Fact is, AMC Networks Inc (NASDAQ:AMCX) would be a bargain at even half its projected growth rate, and Maxim is right to recommend it.

A blizzard of cash
And speaking of companies with great cash flow, Activision Blizzard, Inc. (NASDAQ:ATVI) is practically buried under the stuff. The video gaming company sports a balance sheet rich with $4.4 billion in cash and not a lick of debt. It’s got more cash pouring through the door, too, as each year brings new free cash flow of nearly $1.3 billion. And to top it all off, the company’s sitting on the cusp of the next refresh in video gaming consoles, as Nintendo, Sony Corporation (ADR) (NYSE:SNE), and Microsoft Corporation (NASDAQ:MSFT) square off to sell consumers on their next-gen devices.

Recognizing all this, analysts at Stifel Nicolaus this morning upped their price target on the buy-rated stock to $17 — and they’re right to do so.

Priced at 12.5 times earnings today (or at an enterprise value-to-free cash flow ratio of just 9.5), and paying a 1.3% dividend, the company looks only fairly priced for the 8% Wall Street expects it to produce. Personally, however, I think that 8% rate might be just a wee bit conservative. (Hint: The average stock in the gaming industry is pegged for 19.3% growth, and Activision is the biggest dog in the pound). If I’m right — if Stifel is right — this means Activision’s going to grow a whole lot faster than Wall Street currently gives it credit for, and is a whole lot cheaper than it looks.

Fool contributor Rich Smith owns shares of Activision Blizzard. The Motley Fool recommends Activision Blizzard and Nintendo. It also owns shares of Activision Blizzard and Microsoft.

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