“Hold your horses,” Barrington says of AMC stock

AMC Entertainment (NYSE: AMC) Theaters have seen an explosion of new visitors over the past few days, with queues stretching for miles outside their locations. Moviegoers climbed on top of each other just to try to get to the latest screenings, sending the stock up 135% in the first two trading days of the week.

Ok, only one of these statements is true. Although AMC shares have indeed seen a strong rally, the cause is not rampant demand, but rather the resurgence of meme stocks.

The unexpected return of meme stock pitcher Roaring Kitty has resulted in 2021-flavored names racking up unruly gains, and AMC investors (and the company itself) have reaped the rewards. It remains to be seen how many miles remain to the recovery, however, given that as of Wednesday’s trading session, shares were in correction mode after the movie theater chain announced it would issue Class A shares in exchange of tickets.

The company also put the raise to good use beforehand, revealing the completion of a $250 million ATM program on Tuesday, concluding the stock offering it launched on March 28.

As for how the business is going, once you strip the stock of its credentials, there’s really not much to shout about. At least that’s the opinion of Barrington analyst James Goss.

Looking at the company’s recent first quarter results, total revenue fell less than 1% year-over-year, while EBITDA recorded a loss of -31 .6 million, compared to $7.1 million reported for the same period last year. Additionally, the second quarter started slowly, with fewer notable releases compared to 2023. The April box office was down 50%, and May’s performance was just as slow, at least until the release of Kingdom of the Planet of the Apes. Overall, second-quarter box office revenue is down about 45% year to date.

While later in the summer, and in the third quarter in particular, many attractive films are released, Goss believes that “overall release volume remains light.” Some releases have been pushed to later in the year or into 2025, indicating that the challenging environment will likely persist through most of 2024. However, this also opens up the possibility of a rebound next year.

But more than anything, Goss emphasizes that because of AMC’s high debt load, “significant uncertainty remains.”

“The current capital structure creates considerable uncertainty in the value of the shares, with the term loan maturing in 2026,” Goss continues. “The stock’s recent rise presents an additional opportunity to raise equity capital that can support liquidity and debt reduction, potentially transitioning AMC into a structure that could facilitate institutional support.”

As a result, Goss maintained a Market Perform (i.e. Neutral) rating on AMC stock without having a fixed price target in mind. (To see Goss’s track record, click here)

The rest of the street is no more optimistic. Among other analysts who have recently looked at AMC reviews, the breakdown shows 4 Hold recommendations and 3 Sell recommendations, all resulting in a Moderate Sell consensus rating. At $4.68, the average target implies shares are about 15% overvalued. (See AMC Stock Forecast)

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Disclaimer: The opinions expressed in this article are solely those of the analyst featured. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.