According to a media report that made the rounds on Tuesday, Amazon’s (NASDAQ:AMZN) fingers are looking for another pie to get stuck into. The Intersect website said the e-commerce giant is mulling over a ~$4 billion bid to acquire AMC (NYSE:AMC), the world’s largest, but struggling, theater chain.
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Shares of AMC jumped in response to the news, yet Wedbush analyst Alicia Reese thinks the chance of Amazon buying AMC is unlikely, especially since there could be a better option available.
“Amazon would be better off buying a piece of Cineworld (Regal’s UK parent that filed for bankruptcy protection), in our view,” Reece explained. Here, Amazon could pay a total of $200 million – 1,000 screens for $200,000 a piece. “Why would Amazon instead choose to buy 10,000 screens for $8 billion?” asks the analyst. “The bottom line is that Amazon has no interest in being in the theatrical exhibition space to make money.”
Yes, Amazon could be interested in having somewhere to exhibit its own Amazon Prime movies, but 1,000 screens is more than enough. In fact, Reece thinks 200 will suffice. And Amazon could get a good deal. Before the pandemic, it would have had to pay around $250,000 per screen, but since the Cineworld bankruptcy, Amazon can most likely “cherry-pick” screens for $200,000, an offer the creditors will gladly take.
As such, there’s absolutely no reason why Jeff Bezos’ investment advisers would recommend buying AMC for $8 billion when he could purchase selected screens for $200 million or less. “It is a lower risk strategy and gets them the same thing they are looking for,” Reece went on to add.
Moreover, given AMC’s huge debt load ($4.6 billion net debt) and inflated valuation, Reece just does not believe AMC is a “likely acquisition target.”
All told, Reece reiterated an Underperform (i.e., Sell) rating for AMC shares, while her $2 price target implies shares are overvalued by 59%. (To watch Reece’s track record, click here)
As for Amazon, Wedbush analyst Michael Pacher rates the stock an Outperform (i.e., Buy) along with a $125 price target, implying upside potential of 22% from current levels. (To watch Pachter’s track record, click here)
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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.
