Is AMC Entertainment Stock Worth Knocking Down Here?

Is AMC Entertainment Stock Worth Knocking Down Here?

The largest movie theater chain in the world AMC Entertainment Holdings, Inc. (NYSE: AMC) the stock fell (-67%) for the year, and its AMC Preferred Equity Units (NYSE:APE) shares fell more than 90%. The meme stock craze of 2021, which includes the likes of GameStop Corp. (NYSE: GME) with stock AMC, is anything but a painful memory. The company was unable to take advantage of its brief pressure to reduce its debt.

Interest rate hikes by the US Federal Reserve Open Market Committee (FOMC) also did not help AMC, as its interest on senior secured debt due 2026 rose from 3.10 % at the start of the year to 5.76% at the end of its third quarter. .

As the reopening brought moviegoers to its theaters thanks to blockbuster releases like The Batman and black adam of Warner Bros. Discovery, Inc. (NYSE: WBD) and Top Gun: Maverick of Paramount Global (NASDAQ: PARA), traffic is still down about a third from pre-pandemic levels. The company was able to expand to 950 theaters with 10,500 screens and plans to issue a credit card in Q1 2023 with a line of AMC popcorn to hit grocery store shelves.

The company says it will be cash flow positive by the end of the year with blockbuster releases in Q4 2022 that include Avatar 2 and Black Panther: Wakanda Forever of The Walt Disney Company (NYSE: DIS). It is hoped that the experience will surpass the convenience of streaming movies, especially since they are released even earlier.

The curse of the last man standing

Although there is a halo effect for companies that are considered “last man standing”, but there is a risk of being outdated as there is usually a reason why the competition has died down. Last Man Standing is a status that usually applies to companies in a dying industry, much like Blockbuster Video. Netflix, Inc. (NASDAQ:NFLX) saw the future in streaming video, and that was the nail in the coffin for Blockbuster.

The digital music migration has eliminated the CD music business and record stores. The migration to e-readers and tablets has nearly eliminated bookstores and print newspapers. The COVID pandemic has accelerated the migration to movie streaming which has buried theaters for good. Best Buy Co. Inc. (NYSE: BBY) is the latest man to represent consumer electronics, but it worked for them. Loop analysts at Citigroup have cut AMC’s price targets to around $1, with Credit Suisse giving it a price target of $0.95 as recently as Oct. 31, 2022.

Q3 The calm before the storm?

On November 8, 2022, AMC released its fiscal third quarter 2022 results for September 2022. The company recorded an earnings per share (EPS) loss of (-$0.20) excluding one-time items vs. consensus estimate analysts for a loss of (-$0.25), beating estimates by $0.05.

Revenue rose 26.9% year-over-year (YoY) to $968.4 million, beating analyst consensus estimates of $960.97 million. The Company still had $115 million in operating losses for a total (-$225 million) of quarterly losses. Total losses for 2022 were $700 million with (-$750 million) full cash burn. The Company ended the quarter with total assets of $905.2 million, including $685 million in cash and cash equivalents. The company will have $1.6 billion at the end of 2021.

Fall of APEs

AMC declared a dividend in the form of AMC Preferred Equity (APE) units which began trading on August 22, 2022. The purpose of the APE units was to sell them on the open market to raise funds to repay its debt without further diluting the Stock.

However, since it was essentially a stock split, it didn’t technically dilute the stock, but it definitely diluted the price. APE units were meant to be used as currency to raise funds, but the company failed to raise enough cash as APE units fell from a high of $10.50 on Aug 22, 2022 to 0.73 $ on December 16, 2022. AMC shares fell from $13.09 to $5.31 during the same period. Price dilution, not stock dilution, is what hurt investors the most.

Meanwhile, the company has barely raised funds even to affect interest payments on its massive $12 billion indebtedness, made up of $5.3 billion in debt, $4.43 billion leases and $2.6 billion in other debt. There are fears of a capital increase in 2023, but shareholders are unlikely to approve further dilution of the shares or the price.

Amazon to the rescue?

On November 23, 2022, rumors spread that Inc. (NASDAQ: AMZN) would spend $1 billion to produce 12-15 movies a year for theaters starting in 2023. This makes sense given its history of heavy spending on original content, which includes nearly $13 billion in 2021 and 11 billion in 2020. It also acquired the iconic MGM Studios for $8.45 billion.

For years there has been speculation and wishful thinking that Amazon would be the proverbial white knight to save AMC Entertainment during an acquisition. Amazon has more than $58 billion in cash, and adding another $12 billion to its $164 billion long-term debt would be a drop in the bucket. Its commitment to releasing movies theatrically fuels rumors that AMC could be a strong distribution channel to add to its ecosystem. Time is on Amazon’s side, because the longer it waits, the less an acquisition would cost if it were to happen.

Is AMC Entertainment Stock Worth Knocking Down Here?

Large double bottom test

Weekly candlestick charts indicate the critical double bottom test for AMC shares near $5. This is the last peak at $9.15 on December 1, 2022, it plunged (-43%) to a two-week low of $5.13. Tax-loss selling is inevitable as the end of the year approaches, as investors adjust their portfolios to crop losses. AMC shares are once again approaching the swing lows that occurred in April 2021 and October 2022. The weekly resistance of the 20-period exponential moving average (MA) continues to decline at $7.63, followed by the weekly 50-period MA resistance at $9.19. The weekly stochastic stops at band 20 to either drop back down or form a mini pup. The Market Structure Weekly Low (MSL) is triggered on a breakout at $6.80. The volume was rather light. The pullback support levels on a $5 spread sit at $4.52, $4.27, $3.27, $2.37, $1.98, and $1.30.

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