What happened
Actions of AMC Entertainment (NYSE: AMC) fell 7% on Monday after Citi analyst Jason Bazinet issued a dire warning to the company’s investors.
And
Bazinet reiterated its rating of selling the theater operator’s shares on Tuesday. He sees AMC’s shares plummeting to $ 2 per share. Bazinet’s price forecast therefore represents potential losses for shareholders of around 85% compared to the current share price of around $ 13.
Citi analysts think you should sell your shares in AMC Entertainment. Image source: Getty Images.
Bazinet acknowledged that AMC’s efforts to raise money through the sale of shares and debt made it likely that it would survive the coronavirus pandemic. He also noted that the recent reopening of theaters in New York and California will be beneficial to AMC’s hopes of recovery. However, Bazinet argued that AMC’s shares are “overvalued at current levels”.
What now
For Bazinet’s point, it is difficult to argue that AMC’s share price is justified by the fundamental value of its business. Although it was necessary for AMC to raise cash, its stock and debt offerings diluted shareholders and increased their interest payment needs. This will make it a challenge for AMC to deliver adequate earnings per share to support its current share price. So while the $ 2 target price for Bazinet may seem low, it is likely to be directionally correct.
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