AMC Theater on March 29, 2023 in New York City.
Leonardo Munoz | Corbis News | Getty Images
Shares of AMC Entertainment fell more than 20% on Tuesday, dropping to a new 52-week low of $2.46 per share, as investors prepare to turn around shares later this week.
On Friday, the movie theater chain’s preferred stock units, called APE shares, are scheduled to be converted into common shares just one year after they began trading on the New York Stock Exchange.
These preferred stock units are a workaround of sorts, allowing AMC to sell additional units of stock after investors who feared dilution rejected the company’s efforts to issue additional shares last year. AMC raised billions during the pandemic by selling new stock, which helped the company pay off its debt and avoid bankruptcy during a time when movie theaters were closed or product supply was limited to the public.
AMC also plans a 10-to-1 reverse stock split of its common stock on Thursday.
It will increase the company’s authorized number of shares to 550 million from the previous post-reverse split number of 52.5 million, allowing AMC to issue more than 390 million shares, Eric Handler, managing director at Roth MKM, wrote in a research note published last week.
The stock turmoil follows major back-and-forth moves: The movie theater chain was sued in February for allegedly rigging a shareholder vote that would have allowed it to convert preferred stock into common stock and issue hundreds of millions of new shares. A revised shareholder settlement, in response to that lawsuit, was approved by a Delaware judge last week.
The company’s shares have nearly halved since the Aug. 14 announcement of the conversion of APE shares.
AMC shares fell after the APE conversion was announced on Aug. 14.
“The continued decline in AMC shares…is likely due to investors focusing on the strong possibility that AMC will start issuing large amounts of shares to address the debt balance,” Eric Wald, an analyst with B. Riley Securities, told CNBC on Tuesday. “While this is to be expected, I believe this ignores the opportunity for management to also take advantage of access to capital and high valuation multiples to pursue additional acquisition and expansion opportunities outside of the gallery space.”
Wold sees the stock conversion as a way for AMC to weather the global show industry’s protracted post-pandemic recovery as well as any future impacts from Hollywood’s ongoing writer-actor strikes.
Wold’s current projections show that AMC is unlikely to move into positive free cash flow territory until 2025, so additional liquidity is essential for the company’s immediate future.
Wold currently holds a price target for the stock at $4.50, which is the upper limit for analysts covering AMC.
Meanwhile, the Roth MKM processor is on the opposite end: Its price target is just 50 cents.
“My negative view of the stock is really a call for valuation,” Handler said. “We continue to believe that the company’s shares are trading at an irrational valuation.”
Handler noted that AMC would need to generate approximately $1 billion in adjusted EBITDA to justify its current market value, a figure 78% higher than Roth MKM’s forecast for 2024 and 5% higher than EBITDA. the company’s all-time record of $929 million. in 2018.
For now, Handler said, liquidity concerns have faded.