AMC Entertainment Holdings Inc. stock has “decoupled” from fundamentals and should be sold, according to MKM Partners analyst Eric Handler, who said the stock could fall to $1 this year.
The stock
AMC,
+6.11%
rose $1.03, or 7.8%, in morning trading Monday, but pared earlier intraday gains of as much as 30.1%, while trading volume ballooned to 245.6 million shares.
Although the stock also soared $4.63, or 53.7%, on Friday, it has now recovered just 50% of the $11.27, or 56.6% plunge it suffered last Thursday after the Robinhood trading platform restricted trading in some stocks.
Handler cut his rating on AMC to sell, after being at neutral since May 2020. He also halved his 12-month stock price target, to $1 from $2, saying that while liquidity isn’t an issue for 2021, “achieving solvency came at a steep price.”
Don’t miss: Trading frenzy in AMC stock may stave off bankruptcy but cinema operator still faces years of recovery.
He believes the recent price spike and volatility in the stock, with a little help from the Reddit/WallStreetBets crowd, “has decoupled AMC’s share price and its valuation.”
Read more: GameStop and AMC stocks soar on another day of wild trading in heavily shorted companies.
Handler acknowledged that the near-term prospects of bankruptcy have been avoided, as the struggling movie theater chain has raised $1.2 billion in fresh capital over the past couple months.
“However, equity shareholders have been diluted by roughly 75% over the last couple months and there is still approximately $5.7 billion of debt, a total which is growing each quarter due to deferred interest payments which are tacked on to the principal balance,” Handler wrote in a note to clients. “There is also the overhang of $450 million of deferred rents which will some day need to be addressed.”
Handler estimates that AMC currently has roughly 440 million shares outstanding, based on recent company filings and announcements of at-the-market (ATM) stock offerings and debt exchanges. That compares with the total 137.4 million Class A and Class B shares the company had at the end of October.
Also read: Investors that converted AMC bonds to stock see value of holdings slid 30% in a matter of hours.
“It would not be surprising to see AMC explore the possibility of another ATM offering as a result of the company’s elevated stock price,” Handler wrote. “Additional exchanges of debt for equity is likely another path management will explore.”
The stock has skyrocketed 505.7% just this year, while the S&P 500 index
SPX,
+1.85%
has slipped 0.1%.
Separately, Handler downgraded fellow cinema chain Cinemark Holdings Inc.
CNK,
+2.87%
to neutral from buy, saying he sees limited near-term upside with the stock mostly back pre-pandemic levels. Despite the downgrade, he raised his stock fair value estimate to $22 from $15.
Meanwhile, Handler reiterated his buy rating on IMAX Corp.
IMAX,
+4.23%
and lifted his stock price target to $25 from $18. He says IMAX’s business model “makes a big difference,” as the “global footprint and asset-light structure” has helped it navigate through the COVID-19 pandemic.
