AMC Entertainment (AMC) shares were down Wednesday after Macquarie analysts downgraded the firm, citing their belief that the recovery of movie theatres will take longer than projected.
The firm is lowering its domestic box office forecasts for the second half of 2021, 2022, and 2023, resulting in a downgrade to underperform for AMC while keeping its $6 price target.
“During COVID, the firm was able to escape bankruptcy by obtaining money ($2 billion of liquidity at 2Q21) and refinancing part of its debt, but leverage remains a problem,” analyst Chad Beynon said.
Beynon also points out that the company’s current trading level – shares were down 3.7 percent to $45.37 a share at last check – does not represent the coAMCmpany’s fundamentals, since AMC has $420 million in deferred rent payments in the second quarter on top of its $1 billion annual rent expenditure.
The firm now forecasts $4.4 billion in box office receipts for the entire year of 2021, down 61 percent from its previous forecast. Annual revenue for 2022 and 2023 is expected to be $9.559 billion and $10.612 billion, respectively, down 15.8 percent and 6.5 percent from the prior forecast.
“Overall, we don’t anticipate the firm earning positive FCF until 2023,” Beynon said, “and we feel there are better ways to own the theatrical sector.”
Inadequate goods, decreasing release periods, and COVID-19 limitations, according to the business, are among the reasons why the domestic box office hasn’t rebounded as quickly as predicted. As a result, weekly receipts are still down 30% or more from last year’s levels.
What’s next for the stock?
The analyst’s primary argument was that moviegoers have been extremely sluggish to return. “The main truth is that current weekly revs are still down 30%+ compared to the same period last year,” he said, “while other out-of-house entertainment choices have recovered considerably faster.”
The company has a $6 price objective for the stock, representing a nearly 90% drop from Tuesday’s closing price. Other challenges for the firm, according to Beynon, are significant fixed expenditures, such as rent commitments, and excessive debt. After obtaining cash to survive the effects of the epidemic, the firm now owes roughly $5.5 billion in debt.
Some feel that with the start of a recovery and the present economic outlook, AMC’s theatre business may be on the mend. However, for genuine business investors, a glance at the underlying facts may be depressing.