AMC could keep growing revenue, but it needs to ‘right size’ debt - analyst

AMC Entertainment has the opportunity to continue growing revenue, especially in Europe, but the cinema operator is unlikely to do so until it ‘right sizes’ its balance sheet, that’s the view of Wedbush Securities analyst Alicia Reese.

Having been thrust back into the ‘meme trading’ spotlight over the past week, with the share price more than doubling before falling back, the stock may be back on the radar of regular ‘buy-n-hold’ investors.

Hesitation, as Reece points out, remains on the group’s indebtedness and according to the Wedbush analyst it may take AMC two years to bring the balance sheet back to a ‘right’ size.

Immediately preceding last week’s viral stock rally, the company’s bankers closed a share sale that brought in some $250 million, with the funds earmarked mostly to pay down debt.

“AMC expanded its market share in 2023 and can expand further from its 22.5% market share with its vast network of premium large-format screens and concert movie distribution.

“[It] also has an opportunity to drive revenue growth from its European circuit with theater upgrades that would boost per-screen averages.”

Reese reckons AMC’s heavy debt and lack of shareholder returns overshadow the cinema operators' growth prospects.

With $4.4 billion of debt remaining, after paying back $1 billion, the company has also got a track record of selling stock to cover debt when market demand tips higher – with last week’s stock sale the latest example.

“AMC must cover its interest payments and conserve cash while it posts losses,” the analyst said.

“Shares of AMC recently received a boost from its retail shareholders, only to fall again after issuing shares.”

She added: “AMC is trading roughly in line with its pre-meme historical multiple, albeit still at a premium to its competitors.”

Wedbush has a ‘neutral’ rating for the so-called ‘meme stock’, with a price target of $3.50.

According to Wedbush, AMC has had repeated success renegotiating its debt to extend maturity, and, the broker reckons it can do so again before its next deadline in 2026, when the bulk of the current debt falls due.

At $4.51 on Monday, AMC stock is still up around 32% since before last week’s volatility.