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Despite the growing optimism in the industry, AMC’s shares remain a risky move
Putting all macro elements aside, a look at the cumulative performance of AMC (AMC) shares would make you think you are looking at one of the success stories of the year. Obviously, the 390% of cumulative earnings on shares has little to do with action in the real world and boils down to the fact that stocks are one of the names involved in this year’s short-term frenzy. However, while the 2021 earnings so far are disconnected from reality, it is reasonable to think that the largest US cinema network operator is on its way back to recovery. After all, Covid-19 is slowly retreating and cinemas are opening their doors, which should represent a turnaround in fortune. That said, ahead of Wednesday’s fourth-quarter earnings, Wedbush analyst Michael Pachter takes a more measured view of AMC’s prospects. “We believe the company has sufficient liquidity to allow it to survive on low usage at least until the third quarter, with the reopening of New York cinemas,” noted Pachter. “However, we believe that AMC may take years before being able to revise its previous growth strategy, as it pays off its growing mountain of debt.” The debt accumulated so that AMC could survive the pandemic and avoid bankruptcy. The company still has $ 5.7 billion in debt to pay. And that makes AMC, as Pachter notes, the “biggest risk in the exposure space, given its excessively high debt balance, while the company has significantly diluted its shares between Q3: 20 – Q1: 21”. As for what to expect from AMC’s gains, it’s not surprising to know that the answer is not much. “Our estimates for the fourth quarter assume that domestic admissions revenue per screen fell 85% compared to the year against the industry, 94% in the same period,” said the analyst. Pachter’s forecast points to revenue of $ 141 million, compared to his previous estimate of $ 252 million, while Street has $ 155 million. Pachter’s EPS estimate changed from – $ 4.39 to – $ 2.62, while the consensus calls for – $ 3.61. Looking ahead, Pachter expects an increase in box office with the start of the summer season and, in the fourth quarter, expects cinemas to start filling up again. In all, Pachter values AMC’s shares as Neutral (ie Hold), while the target price gets a significant increase. The value goes from US $ 2.5 to US $ 5, although the revised target still represents a drop of 52% in relation to the current levels. (To see Pachter’s history, click here) According to the rest of Street, an even sharper correction is anticipated. Going at the average target price of $ 3.83, the shares are expected to lose ~ 63% of their value next year. The analyst consensus classifies the shares as Retention, based on 3 Retentions and 1 Sale. (See AMC’s stock analysis at TipRanks) To find good ideas for stock trading with compelling valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all TipRanks stock insights. Disclaimer: The opinions expressed in this article are exclusively those of the analyst presented. The content should be used for informational purposes only. It is very important to do your own analysis before making any investment.