MKM Partners Downgrades AMC Entertainment (AMC) to Sell with a $1 Price Target; Share Count Up 4x
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(Updated - February 1, 2021 8:19 AM EST)
MKM Partners analyst Eric Handler downgraded AMC Entertainment (NYSE: AMC) from Neutral to Sell and cut its price target to $1 from $2, saying achieving solvency has come at a steep price.
The analyst commented, " We are downgrading our rating for AMC to Sell from Neutral. In our view, the recent volatility and spike in the company's stock, thanks to the Reddit/WallStreetBets crowd, has decoupled AMC's share price and its valuation. Near-term prospects of bankruptcy have been avoided thanks to $1.2bn of fresh capital being raised since mid-December. However, equity shareholders have been diluted by roughly 75% over the last couple months and there is still approximately $5.7bn of debt, a total which is growing each quarter due to deferred interest payments which are tacked on to the principal balance. There is also the overhang of $450mn of deferred rents which will some day need to be addressed. Based on our adjustments made for the recent liquidity events and our reduced box office estimates for 4Q20 and 2021, our price target is now $1 (based on 8.5x our 2022E adjusted EBITDA forecast) down from our prior $2 fair value estimate. At AMC's current share price of $14, EV/adjusted EBITDA is 17x our 2022E projections, almost double the industry's historical peak 9x multiple. The emotion behind the #SaveAMC movement could carry the shares higher in the near-term, but we believe this valuation-be-damned momentum is not sustainable over the long term."
The analyst notes the dilution to equity shareholders has been substantial: "The number of shares outstanding should now be in the proximity of 440mn, which is more than 4x the average share count at the end of 3Q20," he added.
Shares of AMC Entertainment closed at $16.41 yesterday.
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