The Ratings Game: AMC shares end 8-day losing streak after rosy outlook, but analysts say high debt burden will limit growth


AMC Entertainment Holdings Inc. shares were poised Friday to end an eight-day losing streak, gaining nearly 5% after the world’s biggest cinema chain outlined a path to recovery after being shut down or forced to operate at limited capacity for a yeat.

But analysts said that, while the company’s liquidity position appears solid after a series of capital raises, its high debt burden will be challenging to service.

“It will take AMC years to repay its debt burden, and longer until it is able to
revisit its growth strategy,” said Wedbush analysts Alicia Reese and Michael Pachter.


posted losses of $567.2 million, or $1.42 a share, for the first quarter, less than the loss of more than $2 billion in the same quarter a year ago, which was mostly due to noncash impairment charges from the movie-theater chain revaluing its properties as the COVID-19 pandemic forced closures across the globe. Sales in the quarter totaled $148.3 million, down from $941.5 million in the first quarter of 2020.

The results were unsurprising given the company had updated guidance a week ago, while ditching a plan to ask investors to approve the potential sale of 500 million additional shares.

Chief Executive Adam Aron said AMC has started the year on a strong footing with the opening of “Mortal Kombat” and “Demon Slayer” two weeks ago creating “our biggest attended weekend at AMC since March of 2020, 13 months ago.” He also said AMC’s market share has increased in the early days of theater reopenings, as many competitors folded up shop.

See now: Imax loss narrows as Asian audiences return to cinema in ‘impressive numbers’

“Over the past 13 months, AMC has raised approximately $2.9 billion of gross cash proceeds from new debt and equity capital, secured around $1.2 billion of concessions from lenders and landlords, obtained more than $150 million of assistance from European governments, and generated more than $80 million from asset sales,” Aron said in the AMC earnings release. “Taken together, we have made well more than $4 billion of progress from our implementing a myriad of capital actions to help us make it through this global storm.”

MKM Partners analyst Eric Handler said the company has navigated through the worst of the pandemic and has succeeded in securing the financing it will need to ensure its survival.

See: Why cinema will survive the coronavirus pandemic

“However, getting to this position resulted in a substantial 330% increase in its diluted share count in the last 12 months to nearly 468 [million] shares,” Handler wrote in a note to clients. “In addition, debt remains substantial at more than $5.5 [billion] , a total that is growing due to deferred interest payments being tacked on to the principal balance. There is also the overhang of $473 [million] of deferred rents, which will need to be gradually repaid over the next few years.”

Handler said that capital structure is a challenge and noted AMC would need to exceed its own all-time high adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, by 16% and his estimate for fiscal 2022 by 60% to justify its current share price.

Handler is sticking with a sell rating on the stock and $1 price target that compares with its current price of $9.

Wedbush analysts said they are sticking with a neutral rating on the stock and 12-month price target of $6.50.

“We expect pent-up demand in North America and Europe to result in the return of
theatrical attendance, similar to China, Japan, and elsewhere in Asia,” the analysts wrote. “As the vaccine rollout continues and large markets begin to re-open with increasing theatrical capacity limits, we think studios are less likely to further postpone tent-pole titles.”

Read now: Netflix not cutting it anymore? Here’s how you can rent out an entire theater for just $5 a person

The next big catalyst will be the Memorial Day weekend, which will see the release of “A Quiet Place II,” which Wedbush expects to bring attendance back closer to normalized levels. June should see a boost from “Fast & Furious 9” before the third quarter brings a more normal release slate.

Webush is also expecting the stock to remain a favorite of the Reddit meme-stock crowd that have helped push it up 347% in 2021: “We expect continued volatility in shares of AMC, as well as trading momentum unrelated to AMC’s fundamentals,” they wrote.

Rival Cinemark Holdings Inc. shares

rose 4% Friday, after better-than-expected revenue for the first quarter offset a wider-than-expected loss, as admissions and concessions revenue both topped forecasts.

The company’s net loss widened to $208.2 million, or $1.75 a share, from $59.6 million, or 51 cents a share, in the year-ago period. The FactSet consensus for the net per-share loss in the quarter was $1.44.

Total revenue dropped 79% to $114.4 million but beat the FactSet consensus of $92.6 million. Admissions revenue fell 80.8% to $56.1 million but topped expectations of $45.8 million, while concessions revenue declined 79.3% to $39.5 million to beat expectations of $28.9 million.

“We are highly optimistic about theatrical exhibition’s resurgence in the U.S. over the coming months on account of a range of factors, including the rapid pace of the vaccine rollout, improving consumer sentiment about returning to movie theaters, recent box office successes and confirmation of consistent product supply,” said Chief Executive Mark Zoradi.

The company said its screen count was 5,872 as of March 31, and it had commitments to open six new theaters with 72 screens this year, and 13 new theaters with 123 screens after 2021.

MKM’s Handler welcomed news the cash “remains plentiful at $513 million,” which compares with his forecast for $463 million. Average monthly cash burn of $47,000 was lower than his estimate for $60,000 a month.

“We view the outperformance as a positive step in the box office recovery process but believe investors will be more focused on management’s forward-looking statements about its liquidity and how it is moving forward with its network,” Handler wrote in a note to clients. MKM rates the stock as neutral.

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