Over the past 18 months, AMC Entertainment (AMC) has experienced two very unexpected developments which have impacted its business and stock.
For one, the coronavirus decimated the cinema-going industry, bringing it to a virtual standstill. Without any sources of revenue, the pandemic almost completely destroyed AMC, with the debt piling up for the already highly leveraged company.
But 2021 brought with it a savior from left of field in the form of the meme stock phenomenon, with retailers making AMC possibly the segment’s favorite name, barring the undisputed meme stock king, GameStop.
The company used this stroke of luck wisely. The share price’s meteoric rise allowed the company to raise roughly $2 billion in cash from ATM stock sales and to ladder its debt repayment schedule with no maturities until 2023 and with the majority not due until 2025.
As Barrington analyst James Goss notes, these measures have given the company the required flexibility needed so it can buy a “limited” number of high-profile theatres in Los Angeles, Chicago and Atlanta. The company also increased some ticket prices in its high-quality theatre properties without meeting any resistance from consumers, highlighting moviegoers’ pent-up demand for the cinematic experience.
“Thus,” says Goss, “Management has aggressively taken actions to move forward in recreating momentum to work through both internal and external challenges.”
The latest quarterly results were also promising, albeit on easy height of the pandemic comps, yet still coming in ahead of expectations. Moreover, all of the company’s locations had reopened by the end of the quarter and to meet the rising demand, operating hours have been expanded.
But Goss still thinks the high degree of leverage creates “significant uncertainty” for AMC, and there are also issues to consider when mulling an investment in this meme stock favorite.
“As normalization occurs, core issues such as box office levels, theatrical attendance versus streaming, health concerns versus desires, windows agreements and other such things will factor more prominently,” Goss summed up. “It is reasonable to note progress, but a return to normalcy may also bring an increased focus on fundamentally-based valuations.”
Accordingly, Goss rates AMC stock a Market Perform (i.e. Hold) without suggesting a price target. (To watchGoss’ track record, click here)
The AMC fence sitters just edge ahead of the pessimists with 4 Holds vs. 3 Sells. With the addition of a lone Buy, the stock qualifies with a Hold consensus rating. That said, the rating might as well be a Sell; considering the $5.84 average price target, analysts expect shares will drop by a depressing 82% in the year ahead. (See AMC stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.