Macquarie analyst Chad Beynon and his team reiterated their $6 price target (the cost of one ticket at an AMC theater is about $14) and Neutral rating on AMC in early afternoon trading Thursday. While the group commended AMC CEO Adam Aron for his embrace of the enthusiastic retail trading community and voiced optimism on a box office recovery post-pandemic, the analysts remain concerned about the company’s balance sheet.
“Despite shares now up 2,850% year-to-date (as of 6/2 close) vs. the S&P 500 of 12%, AMC balance sheet is still hampered by nearly $5.5 billion of debt as of the end of 1Q21 and our projected leverage of 12.3x by year end 2022. AMC, the largest global player (945 theaters) should benefit from the rebound in theatre demand, which is urgently needed in order for the company to address deferred rent ($450 million+), maintenance capex (~$100 million), and high annual interest (~$420 million),” said the note.
The analyst team sees AMC losing nearly $2.5 billion from 2021 to 2023 on an adjusted operating profit basis. But, the note added the financial estimates are “under review.”
AMC shares crashed 31% Thursday after a nearly 100% surge on Wednesday amid a renewed appetite among retail traders for meme stocks. The stock’s pullback on Thursday follows a disclosure by AMC that it will issue 11.5 million new shares — as Aron looks to capitalize on the stock’s latest surge — to raise money to fund various corporate initiatives.
The stock was sent back into overdrive on Tuesday, as the company — which like other meme names has weak fundamentals for a myriad of reasons — unveiled an 8.5 million share sale. The company fetched $230.5 million in the sale to investor Mudrick Capital (which then reportedly sold the stake, saying the stock was overvalued).
Shares have also been boosted by a favorable box office performance during Memorial Day weekend, experts said.
At more than $31 billion, AMC’s market cap is higher than Delta ($30 billion) and Autozone ($30.9 billion) per Yahoo Finance Plus data. At one point in Wednesday’s session, the stock was up more than 3,000% on the year. This week alone, AMC’s largest institutional shareholder Vanguard has reaped about $1.1 billion in paper gains thanks to the stock’s steep climb.
“When the music stops, this stock is going to fall hard in my opinion,” said Miller Tabak strategist Matt Maley on Yahoo Finance Live. Maley thinks the stock has come on too hard given where the company’s business stands, and is warranting of a sizable correction once the frenzied buying settles.
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