The Ratings Game: AMC stock is ‘out of touch’ with fundamentals but capital raises should provide a boost, analyst says


Shares of AMC Entertainment Holdings Inc. bounced around in another volatile session Friday, after Wedbush analyst Alicia Reese said that while the movie theater operator has made the best of its current “meme stock” status by raising equity capital, prices remained “out of touch” with fundamentals.

Reese reiterated the neutral rating she’s had on AMC since March 2020, but lifted her stock price target to $7.50 from $6.50. The new target is about 85% below current levels.

The stock

slipped 0.8% in morning trading, but was down as much at 6.1% and up as much as 9.1%, all in the first half-hour after the opening bell. The stock closed down 17.9% on Thursday, but had traded in a range of down 39.8%-up 10.0% intraday.

The stock was still up 95.0% this week, after rocketing 116.2% the week before.

The pared gains to end the week followed the company’s announcement that it sold 11.55 million shares to raise $587.4 million, bringing the total equity raise in the second quarter to $1.246 billion. AMC then said after Thursday’s closing bell that it will ask shareholders for the authority to issue up to 25 million additional shares.

“With this capital infusion, AMC can more rapidly reduce its debt and return to its prior growth strategy of upgrading its European circuit and expanding screens in the Middle East,” Reese wrote in a note to clients. “We also expect AMC to take part in the bidding process for newly available domestic theater assets.”

See added that she was “increasingly optimistic” about the movie-theater business in a post-pandemic environment, as signs of pent-up moviegoing demand suggest a strong box office in the coming months. She said the opening Memorial Day weekend box office for “A Quiet Place II” bodes well for the summer as COVID-19 restrictions continue to be lifted.

“As the vaccine rollout continues and large markets reopen with increasing theatrical capacity limits and more relaxed mask mandates, we think studios are unlikely to further postpone tentpole titles,” Reese wrote.

That said, even in Reese’s best case scenario, her stock price target would be well below current levels.

“Should AMC use its current cash balance to meaningfully reduce its debt and create earnings growth opportunities, we could envision a justified price target as high as $10, and we therefore view its current price as out of touch with the company’s fundamentals,” Reese wrote.

But keep in mind, that is what AMC said Thursday in a filing with the Securities and Exchange Commission: “We believe the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last.”

Don’t miss: Here’s AMC’s blunt new warning to prospective buyers of its new stock offering.

AMC has helped fuel the recent trading frenzy around its stock, as it offered a “free large popcorn” to members of its new AMC Investor Connect, announced a day before its latest equity raise.

“Meme” stocks have enjoyed renewed interest from retail investors this week as part of a “BANG” rotation, a new acronym given to the more-popular stocks: BlackBerry Ltd.
AMC, Nokia Corp.

and GameStop Corp.
as MarketWatch’s Thornton McEnery reported.

BlackBerry’s stock has run up 45.1% this week, while shares of Nokia have advanced 6.6% and GameStop have rallied 13.0%. Meanwhile, the S&P 500 index

has edged up 0.4% week to date.

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