Analysts at Wedbush have upgraded their rating on AMC Entertainment Holdings (NYSE:AMC) following the cinema chain’s 10-to-one reverse stock split.
They upped their rating from ‘Underperform’ to ‘Neutral’ and awarded AMC a post-reverse split 12-month price target of $19, up from $2.
AMC shares fell 30.2% to US$13.68 late morning on Thursday on dilution concerns ahead of the conversion of AMC Preferred Equity Units (APE) into common shares effective Friday.
However, the Wedbush analysts believe that AMC shares will settle around their new $19 price target following the reverse stock split and APE conversion, as the resolution of its court case removed a significant overhang.
“After the 10-to-one reverse-split, conversion, and once the settlement shares are issued, AMC will have 158 million shares outstanding. This takes our price target to $19 using the same enterprise value on our $600 million 2025 earnings before interest, taxes, depreciation and amortization (EBITDA) estimate,” the analysts wrote in a note to clients.
The analysts also believe AMC is well-positioned against an improving cinema industry backdrop.
“We expect 2023 North American box office to end up 20% over 2022, or about 78% of 2019 box office, with AMC at least maintaining its 22% market share if not expanding with its vast network of premium large format screens,” they wrote.
“Moviegoers are finicky with content these days, but we are seeing that they also increasingly opt for premium screens and a larger basket of high-margin concessions. We expect the European box office to improve over time as AMC updates its circuit in the region, adding premium screens.”
They added that AMC was particularly well positioned going into its third quarter earnings report, with the domestic box office trending up 32% year-over-year in the quarter to date and up 11% over the same period in 2019.
“With a very easy comparison to last year’s release slate hole in 2H: for 3Q, we expect the quarter to end up nearly 50% year-over-year, and up 2% over 3Q 2019,” they wrote.
“AMC is best-positioned to gain market share in 3Q 2023 as it has the largest footprint of IMAX theatre in North America, and IMAX significantly over-indexed on Oppenheimer, while Barbie likely played very strongly on AMC’s large footprint of Dolby screens.”
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