AMC Entertainment’s APE Preferred Equity Raises Dilution Concerns – Wedbush
2022.08.23 20:02
AMC Entertainment’s (AMC) APE Preferred Equity Raises Dilution Concerns – Wedbush
By Sam Boughedda
A Wedbush analyst cut the firm’s price target on AMC Entertainment (NYSE:AMC) shares to $2 from $4 per share on Tuesday, telling investors in a note that quality movies are drawing crowds back to theaters regularly, but the volume of content has not yet returned to pre-pandemic levels.
The analyst, who has an Underperform rating on the stock, cut the price target after AMC’s preferred equity (NYSE:APE) began trading on Monday.
“AMC preferred Equity (‘APE’) in effect created a two-for-one stock split, with half listed under AMC and half under APE. At the end of APE’s first day of trading, the combined shares lost $800 million in enterprise value from Friday’s closing price of $18.01, with AMC ending the day at $10.46 and APE at $6.00. While it makes little sense for APE to trade below AMC, we think that it reflects concerns over impending dilution,” the analyst said.
Speaking on the overall movie theater industry, the analyst stated that “release slate holes such as the 2H of Q3 are primarily driven by production delays over the last year.”
“AMC has plenty of cash to weather a two-month slump, and is well-positioned for a strong Q4:22 and 2023. AMC has gained market share vs. its pre-pandemic average on an improved footprint, and as some competitors have delayed theater upgrades. AMC continues to right-size the ship by repaying and restructuring debt, acquiring more quality screens while removing underperforming screens, and making inroads into secondary revenue sources, including alternative content and retail popcorn sales,” explained the analyst.
Meanwhile, the Wedbush analyst dismissed views that Cineworld’s potential bankruptcy is a risk to the industry, stating it does “not portend negative industry dynamics.”
