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AMC: A Hardened Pandemic Survivor, but Loaded With Debt

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The pandemic’s ruinous implications for AMC (AMC) have been well-documented.

The theater chain delivered its 4Q20 earnings report last week, unsurprisingly reporting downbeat results. However, the company managed a beat on the top-line, with revenue coming in at $162 million, ahead of consensus estimates by $20 million. Still, as an indication of what a struggle 2020 has been, the figure was 89% below the results from the same period in the previous year.

With theaters shuttered or operating at a significantly reduced capacity during 2020, the company’s focus has been on staying above water until the pandemic fades from view. As Covid-19 slowly retreats, AMC’s theaters are expected to fill up.

However, over the past year, to stay afloat, the company’s debt load has ballooned.

While Wedbush analyst Michael Pachter admits it will take AMC “years to repay its debt burden, and longer until it is able to revisit its growth strategy,” the analyst is “increasingly optimistic.” The vaccine rollout has gathered pace, which could see a faster return to normalcy and the prospect of a busy release slate being pushed forward. And, as Pachter notes, no doubt, “demand for theatrical content is high.”

Additionally, Pachter thinks AMC has done well in dealing with the pandemic’s repercussions.

“While theatres have been closed or underutilized over the past year, AMC has successfully expanded its liquidity, raising enough to last through midsummer without an incremental box office boost,” the analyst said, “We believe the company has sufficient liquidity to allow it to survive with low utilization through at least Q3.”

However, for now, Pachter sticks to a Neutral (i.e. Hold) rating although he raised his price target from $5 to $6.5. Pachter maybe optimistic about the post-pandemic environment, but for him the shares are still significantly over-priced. (To watch Pachter’s track record, click here)

Barrington analyst James Goss takes a similar view. The analyst notes that 90% of the company’s domestic theatres have reopened, and more are anticipated in the coming weeks, including operations in several key California markets, which should open before the end of the quarter.

Like Pachter, Goss is also impressed with AMC’s cost saving measures, but is weary of getting too optimistic for now.

“The company remains particularly diligent in its control of expenses and optimizing the operations of its theatre footprint to limit cash burn,” Goss said. “However, significant uncertainty remains for the company due to the high degree of leverage in its business model.”

To this end, Goss has a Market Perform (i.e., Hold) rating for the shares and has not set a specific price target. (To watch Goss’ track record, click here)

Looking at the consensus breakdown for AMC, the bears are still in control. Based on 3 Holds and 2 Sells, the stock has a Moderate Sell consensus rating. Shares are expected to tumble by ~66%, considering the average price target stands at $4.83. (See AMC stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.