AMC Sinks 8.5% On $47.7M Equity Offering; Street Sees 80% Upside

Shares in AMC Entertainment plunged 8.5% after the cash-strapped theater chain announced that it is looking to tap financial markets and raise as much as $47.7 million in fresh capital through a share offering.

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AMC (AMC) filed a shelf registration to offer up to 20 million shares of its class A shares at a maximum offering price of $2.39 each. According to the filing, the world’s largest theater chain will execute the offering from time to time.

AMC has been grappling with the financial impact of the closure of movie theaters worldwide and the temporary suspension of operations due to the global lockdowns triggered by the coronavirus outbreak earlier this year. The theater chain operator said that during the third quarter ended September 30, its US theatres began to re-open following a five-month suspension of operations.

The first domestic theaters opened in August and locations across the US have continued to open since then. As of September 30, AMC had resumed operations at 467 domestic theaters with limited seating capacities of between 20% and 40%, representing approximately 78% of domestic theaters and 73% of 2019 domestic same-theater revenue.

However most recently, as a result of the resurgence of COVID-19 cases in some international markets, including Italy, Germany, Spain, and the UK, which have all announced or enacted plans to reinstitute lockdowns, AMC plans to close or has closed some of its previously reopened theaters in these countries.

“Of paramount importance, as well, are our efforts to strengthen our liquidity profile. Starting in March, we raised approximately $900 million of gross proceeds from new debt and equity capital, secured more than $1 billion of concessions from creditors and landlords and raised more than $80 million from asset sales,” AMC CEO Adam Aron stated. “The duration and impact of this pandemic are still affecting us to this day and are certain to continue to affect our results going forward.”

“The liquidity enhancing and leverage reducing actions that we already have taken and will further need to take, combined with our relentless focus on efficiency and cash management, are all crucial to navigating through this storm,” Aron added.

Shares in AMC have been hit hard and have tanked more than 70% so far this year, with analysts taking a cautiously bearish outlook on the stock. The Moderate Sell consensus shows 4 recent Holds and 2 Sells. Meanwhile, the $3.88 average analyst price target implies a promising 80% upside potential over the coming year.

Wedbush analyst Michael Pachter last month reiterated a Hold rating on the stock as he expects negative long-term impacts from the pandemic, while giving AMC credit for restlessly seeking ways to improve its net debt position to increase the likelihood of its survival.

“We do not expect attendance levels to begin to normalize until mid-2021, which presents a real risk to the industry, and AMC in particular,” Pachter wrote in a note to investors. “We expect a slow recovery throughout AMC’s global footprint, with Europe currently at risk of a second round of closures, while AMC’s domestic footprint continues to expand re-opening with little new content.”

“With that said, there may be a lot of pentup demand once the release slate normalizes, which would be incremental to our estimates,” the analyst summed up. (See AMC stock analysis on TipRanks)