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 before settling lower 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 84% below current levels.

The stock

dropped 6.7% to close at $47.91, but was down as much as 10.3% and up as much as 12.0% in a session that saw multiple lead changes since the opening bell. On Thursday, the stock had closed down 17.9% after trading in a range of down 39.8%-up 10.0% intraday.

The stock was still up 83.4% 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.”

FactSet, MarketWatch

Reese 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.

And Wedbush’s Reese is certainly not the only Wall Street analyst who may think the stock is overvalued. None of the 10 analysts surveyed by FactSet are bullish on AMC, while six have the equivalent of neutral ratings and four have the equivalent of sell ratings. The average price target is $5.25, or 89% below Friday’s closing price.


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

“Meme” stocks enjoyed renewed interest from retail investors earlier 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.

Shares of BlackBerry have run up 37.6% this week, Nokia have advanced 6.2% and GameStop have rallied 11.9%, while the S&P 500 index

has edged up 0.6%.

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