AMC Entertainment shares fall to 52-week low

AMC Entertainment It hit a new 52-week low on Wednesday as the movie theater company faced a massive debt load, stock dilution and short release times for blockbusters.

Shares in the world’s largest movie theater company have fallen about 80 percent so far this year to below $6 as investors questioned the company’s capital structure and overall business strategy.

The company recovered from the brink of bankruptcy in 2021 as millions of retail investors turned its stock into a meme stock.Since then, AMC has developed plans to raise more capital to pay down debt and invest in acquisitions, theater upgrades, popcorn operations even a gold mine.

In its latest effort, AMC paid out a dividend to all common stockholders in the form of preferred stock called “APE,” a reference to the “ape” moniker adopted by meme stock investors. However, analysts said the company won’t be able to take full advantage of selling the new shares until disillusioned investors pull back support.

For now, AMC has enough cash on hand to stay afloat and operate for years to come, said Eric Handler, a media and entertainment analyst at MKM Partners. AMC had more than $1.17 billion in available liquidity as of June 30. The plunge in its share price is “purely related to capital structure,” he added. According to Handler, the stock is overvalued, even amid depressed prices.

AMC has also struggled to turn a profit in recent quarters, and its debt load of $5 billion is about $2 billion higher than its market value. The company accumulated debt before the pandemic, when it acquired several smaller theater chains and invested in upgrading its theater seating and screens. Wedbush analyst Alicia Reese said that while AMC may have delayed its debt payments, “it doesn’t necessarily mean it will be a favorable environment when they have to refinance.”

Reese noted that the stock initially fell as management executives sold the stock when it peaked in mid-2021 and steadily declined in the months that followed. Another sell-off came in August, when AMC announced it would pay a dividend to all shareholders in the form of APE Preferred Stock.

“If AMC had moved very quickly, they could have taken advantage of that,” she said. “If they had sold enough shares to wipe out the debt balance, they could have done so. They would lose all their retail shareholders very quickly, but fundamentally they would be more attractive, even though the stock count would be huge .”

Representatives for AMC did not immediately respond to CNBC’s request for comment.

In a letter to shareholders in August, CEO Adam Aron said APE’s stock would “fundamentally” strengthen AMC. “Given the flexibility APE will give us, we are likely to be able to raise capital if we need or choose, which greatly reduces any existential risk as we continue to work through this pandemic to recover and transform, ” he wrote.

Then, in late September, the company hired Citigroup Acting as an underwriter for the sale of up to 425 million preferred shares. Reese noted that the sale could be worth around $750 million, a “small gap” in the company’s overall debt.

“It seemed like a lost opportunity to me,” she said. “APE’s share price is so low right now that it’s not as well positioned as they were in mid-August.”

Shares of APE, which began trading in August, fell about 5 percent on Wednesday to their lowest point so far. The stock hit a new 52-week high of $10.50 in late August.

These APE shares were designed as a workaround to help AMC free up more stock units as it struggles to revive its business post-pandemic. The company has raised billions of dollars by selling new stock during the pandemic, but has no stock to sell. Investors, including AMC’s staunchest fans, feared dilution and rejected the company’s efforts to issue additional shares.

AMC has about 100 million shares outstanding before retail investors start buying shares in late 2020 and early 2021, Reese noted. Over the next two years, that number ballooned to 500 million.

The combination of AMC’s common stock and APE’s preferred stock now equals more than 1 billion shares outstanding.

“They’ve been downplayed into oblivion,” Rees said.

A severe lack of blockbuster content also weighed on investors in the final months of the year.

only Four possible blockbuster releases To be released before the end of the year: Warner Bros.‘”Black Adam (October 21), and Disney’s Black Panther: Wakanda Forever (November 11), Strange World (November 23) and Avatar: The Way of Water (December 16)

In 2019, nearly two dozen blockbuster-style films hit theaters in the final four months of the year, including “Star Wars: The Rise of Skywalker,” which grossed $177 million domestically in its opening weekend.

In the wake of the coronavirus pandemic, audiences have returned to movie theaters and are spending more than ever on tickets and popcorn. However, the lack of steady theatrical releases will weigh heavily on the industry in the final months of the year. AMC should be able to escape this lack of content thanks to its large cash reserves.

“You need your dry powder to prevent any kind of disturbance,” says Handler. “I think they can limp on their current balance sheet for many years.”

Hollywood production has picked up, and the release calendar will improve in 2023 and beyond. Currently, the 2023 box office total is expected to be around $9.5 billion, according to estimates by Eric Wold, senior analyst at B. Riley Securities. That compares to $11.4 billion in 2019.

“I think the outlook for AMC is positive, with the potential to return to pre-pandemic box office in 2024,” he said.