A mask required sign is displayed outside an AMC movie theater in Council Bluffs, Iowa
Dan Brouillette/Bloomberg
AMC Entertainment Holdings’ share price ignores the company’s substantial debt obligations and massive stock sales over the last few months, according to MKM Partners.
The analysts cut their rating to Sell from Neutral, setting a price target of $1 for AMC (ticker: AMC) despite its big bounce over the last week.
Shares of AMC gained 13% on Monday but later in the morning some of the steam started coming out of the trade, and the stock was up 10%, to about $14.60. Shares have gained 126% in the past 12 months compared with 15.7% return for the S&P 500 Stock index. AMC stock is up 588% so far this year.
MKM’s Eric Handler said in a note on Monday that the stock price has diverged from the company’s valuation.
AMC has raised $1.2 billion in capital since mid-December, filling its coffers with cash to stave off a bankruptcy. But stockholders have seen nearly 75% dilution, and AMC still has $5.7 billion in debt to pay.
The largest U.S. theater chain operator took $600 million of debt off its books last week when private equity investor Silver Lake converted its bond to stock, and then sold that stock.
But AMC has been deferring debt interest payments, Handler noted. It also has $480 million in deferred rents that will come due some day, possibly soon. It has sold millions of shares of stock, raising its outstanding shares to 440 million, more than four times the average share count at the end of the third quarter.
The company has been caught up in the trading mania stoked by retail investors goading each other on a Reddit chat forum to bid up stocks of GameStop (GME), BlackBerry (BB), Express (EXPR), AMC and others.
It’s a David-and-Goliath story pitting these retail investors against Wall Street hedge funds, some of which have closed out their bets against GameStop.
These stocks have one thing in common: They had fallen out of favor. Some of the targets are retailers that have been subject to business interruption caused by the pandemic.
AMC is able to operate in some locations, but not its key locations in New York City and Los Angeles, and where it can operate it faces occupancy restrictions.
Movie theater operators in general have suffered over the last year because of these business interruptions. Domestic box office sales totalled $2.1 billion in 2020, but that is down 82% from 2019.
Last week, Goldman analysts said AMC had raised enough capital to survive through the middle of 2021 even if the box office doesn’t recover by then.
MKM’s Handler said, “The emotion behind the #SaveAMC movement could carry the shares higher in the near-term, but we believe this valuation-be-damned momentum is not sustainable over the long term.”
Write to Liz Moyer at [email protected]
