AMC stock has been a Reddit fan favorite. But while retail traders keep buying up the stock, some on Wall Street think it’s a sell.
Macquarie Research downgraded AMC Entertainment (AMC) to underperform from neutral in a note dated Sept. 1 and kept its 6 price target.
AMC became a “meme stock” following a short-squeeze started by the Reddit group earlier this year.
Shares have come well off their high of 72.62 from June, but are still up more than 500% over the last 12 months while also outperforming the S&P 500, Macquarie noted.
Factors To Watch For AMC Stock
- The premium for AMC stock looks high: The analysts calculate that shares are trading at 58 times 2022 consensus estimates for EBITDA vs. a range for six to nine times for the overall movie theater business.
- Leverage remains an issue: Management used the explosion in retail investing to raise capital and refinance debt by selling AMC stock. The company avoided filing for bankruptcy and had $2 billion in liquidity at the end of Q2. But Macquarie estimates that leverage will still be 8.2x by the end of 2022.
- Cash flow: Macquarie said AMC has deferred rent of $420 million in Q2, on top of its annual rent expense of $1 billion. Meanwhile, typical spending on maintenance is about $140 million, and annual interest payments are around $420 million. But the analysts don’t see AMC reporting positive free cash flow until 2023.
- Domestic box office: The analysts see ticket sales reaching only $4.4 billion for the year, below AMC’s expectations for $5.2 billion. And Macquarie’s 2022 estimate of $10.3 billion is also 17% below the 2016-2019 average.
- Mid-tier films: Non-blockbusters, movies with a domestic box office of $50 million to $100 million, have underperformed in recent years, and the analysts are “concerned” about the number of these mid-tier movies being released this year. The shrinking window between a film’s theatrical release and its streaming release remains a concern too.
Indeed, studios like Disney (DIS) have opted for a direct-to-consumer release via streaming services. The cost for a family of four paying a premium for the movie on top of their streaming fee is far less than going to the theater.
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