AMC Entertainment (NYSE:AMC) theatres have seen an explosion of new visitors over the past few days with queues stretching for miles outside its locations. Cinemagoers have been clambering over one another just trying to get into the latest screenings and that has sent the stock soaring by 135% over the first two days of the week’s trading.
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Ok, only one of these statements holds true. While AMC shares have indeed experienced a strong rally, the cause behind it isn’t the frenzied demand, but rather the resurgence of meme stocks.
The unexpected return of meme stock firestarter Roaring Kitty resulted in 2021-flavored names piling on some unruly gains, and AMC investors (and the company itself) have been reaping the rewards. It remains to be seen how much mileage is left in the rally, however, given that as of Wednesday’s trading session, the shares were in correction mode after the movie theatre chain announced it will issue class A stock in exchange for notes.
The company also put the surge to good use beforehand, disclosing on Tuesday the completion of a $250 million ATM program, concluding the equity offering it had launched on March 28.
As for how the business is going, once you strip the stock of its meme credentials, there’s really not much to shout about. At least, that appears to be the take of Barrington analyst James Goss.
Looking at the company’s recent Q1 results, total revenue fell by less than 1% year-over-year, while EBITDA showed a loss of -$31.6 million compared to the $7.1 million reported in the same period a year ago. Furthermore, Q2 has begun sluggishly, with fewer notable releases compared to 2023. The box office in April decreased by 50%, and May’s performance has been similarly slow, at least until the release of Kingdom of the Planet of the Apes. Overall, Q2 box office revenue is down approximately 45% to-date.
While later in the summer, and in Q3 in particular, there are multiple attractive films coming out, Goss thinks the “overall release volume remains light.” Some releases have been pushed out to later in the year or into 2025, indicating that the challenging environment is likely to persist throughout most of 2024. However, this also sets up the potential for a rebound next year.
More than anything, though, Goss points out that due to AMC’s high leverage, “significant uncertainty remains.”
“The current capital structure creates substantial uncertainty for equity values, with its term loan due in 2026,” Goss goes on to say. “The recent surge in the stock presents an additional opportunity to raise equity funds that can support liquidity and debt reduction, eventually moving AMC to a structure that could facilitate institutional support.”
Accordingly, Goss maintained a Market Perform (i.e., Neutral) rating on AMC shares without having a fixed price target in mind. (To watch Goss’s track record, click here)
The rest of the Street is no more optimistic. Of the other analysts who have recently waded in with AMC reviews, the split shows 4 Holds and 3 Sell recommendations, all culminating in a Moderate Sell consensus rating. At $4.68, the average target implies the shares are overvalued to the tune of ~15%. (See AMC stock forecast)
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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.
