Wall Street analyst Eric Handler downgraded AMC to “sale” on Monday, despite the recent increase in the stock of the cinema chain and the announcement that it would not file for bankruptcy anytime soon.
Handler of MKM Partners said that AMC’s shares were “decoupled” from the fundamentals and should be sold, adding that the shares could fall to $ 1 this year.
Raised by investors in Reddit’s chat group WallStreetBets, AMC’s shares rose more than 30 percent on Monday morning. AMC’s shares stabilized at just over 6%, to around $ 14.10 in the midday trading session.
Although the stock rose $ 4.63 or 54 percent on Friday, it has now recovered just 50 percent from the 57 percent drop last Thursday, while the Robinhood trading platform continues to restrict buying of uncontrolled actions.
Handler reduced his AMC rating to ‘sell’ after being neutral since May 2020. The analyst also halved his 12-month stock price target from $ 2 to $ 1, noting that, although liquidity is not a problem for 2021, “achieving solvency came at a high price. “
The analyst cited the dilution of shares in the wake of the company’s efforts to raise money by issuing new shares to retail investors, as well as its expanding debts. He also raised concerns that recent negotiations “have decoupled AMC’s share price and valuation.”
The analyst acknowledged the positive news of the past week, that is, that the prospects of short-term bankruptcy have been avoided, since the difficult network of cinemas has raised $ 1.2 billion in new capital in the last two months.
“However, shareholders have been diluted by about 75 percent in the past two months and there is still about $ 5.7 billion in debt, a total that is growing each quarter due to the deferred interest payments that are added to the main balance, ”Handler said. “There is also an excess of $ 450 million of deferred rentals that will someday need to be resolved.”
Handler estimates that AMC currently has around 440 million shares outstanding, based on recent company records and announcements. [ATM] stock offers and debt swaps. This compares with the total of 137.4 million class A and B shares that the company had at the end of October.
“It would not be surprising to see AMC explore the possibility of another ATM offering as a result of the company’s high share price,” said Handler. “Additional debt-to-equity swaps is probably another way that management will explore.”
AMC’s shares soared 506% this year alone, while the S&P 500 fell 0.1%.