Wedbush reiterates an Underperform rating on AMC Entertainment (NYSE:AMC) while still identifying a pair trade opportunity with AMC’s preferred units. Despite making progress in paying down its debt, Wedbush believes AMC stock is still expensive.
In line to post its first gain in more than a week, AMC stock (NYSE:AMC) is up 7.3% today, joining a market-wide recovery day (it last finished positive on Dec. 21 before four straight down trading days). AMC’s proposal to exchange its AMC Preferred Equity units (APE), also up 8.6% Thursday) for debt-for-equity served as a major driver for those falls.
AMC Stock Forecast
According to experts Alicia Reese and Michael Pachter, the movie theater industry is still on the road to normalization, and AMC has the financial resources to continue operating in a favorable environment in the upcoming year. But they added, “AMC is still struggling with its enormous debt position, as it finds ways to bolster confidence among its retail shareholders through new business operations and screen acquisitions.
AMC’s recent activities show that “AMC’s 2023 financials will look comparable to its financials in 2019,” they claimed, after a HSR review and at least the first two shareholder proposals have passed. The same pattern will be seen in revenue, but EBITDA margin will lag because of more recent macro constraints.
Investors “would anticipate AMC’s stock price to be lower in 2023 than 2019 under all other circumstances,” they wrote. “However, based on the December 28 closing prices of AMC and APE, assuming an APE share conversion and reverse stock split, shares should trade at $52.90, a 711% premium to AMC’s share price by January 1, 2020.”
The company restated its $2 price objective, which, given the current share count, calls for a 51% decline. Assuming the APE conversion and reverse split, the price target would increase to $40 from the likely trading price of $52.90. “If we compare this to January 1, 2020, where the share count was similar and net debt was $450 million less, it becomes even clearer how overpriced shares of AMC are at current levels,” the analyst wrote. Having said that, AMC undoubtedly has a group of “steadfast” retail investors who will probably continue to support its stock prices.
Regarding the effects of converting the APE units into AMC shares, we advise a pair trade because APE shares (APE) are now selling for less than $2 a share and ought to trade in line with AMC stock (NYSE:AMC).
AMC’s CEO Adam Aron proposed limiting salary increases for himself and other executives in response to recent reductions, and the exchange plan prompted S&P to downgrade AMC’s long-term credit, describing the action as “tantamount to default.”
The Reason Why AMC Stock Is Falling Today
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