The contrast between the fortunes of the world’s largest online retailer and the world's biggest movie theater operator during the COVID-19 pandemic could not be greater.
Amazon (AMZN) has sailed through the global crisis, intrinsically well set up to benefit from the current situation. While AMC (AMC) displays all the hallmarks - currently shut down, entirely reliant on large gatherings - of a company struggling to make it through the worldwide crisis.
But a recent report has linked the two together. The Daily Mail reported that the two companies have been discussing a potential takeover of the beleaguered exhibitor by the e-commerce giant.
The rumors were good news for long suffering AMC shareholders, as the report sent shares soaring by 30% in yesterday’s trading session.
Do the rumors make sense? According to B Riley analyst Eric Wold, they do, if you’re Amazon.
Wold noted, “With Amazon not dependent on any other release windows beyond its own subscription service (other than to qualify for industry awards), we would view increased control over the theatrical window through the acquisition of a large exhibitor as providing Amazon both an incremental earnings stream from its own films and an attractive marketing vehicle to drive additional subscribers being exposed to the studio's films—something that, we believe, other studios would be comfortable with them doing.”
But what about for AMC? Here the issue is more nuanced. Even before the pandemic decimated the movie theater world, AMC was highly leveraged, already at war with the emerging streaming market and now appears only a few steps away from bankruptcy. So you would think a buy-out would be beneficial for AMC, too. But on top of the regulatory hurdles, Wold remains skeptical whether a transaction based on AMC’s current low valuation and the accompanying terms (likely a cash rather than stock-based deal) would appeal to major AMC shareholders.
All said, Wold maintains a Hold rating on AMC shares along with a $4 price target, indicating about 25% downside from current levels. (To watch Wold’s track record, click here)
The rest of the Street appears no more optimistic. Based on 7 Holds and 3 Sell ratings, the analyst consensus rates AMC a Moderate Sell. The average price target is well below Wold’s, and at $3.33 implies a decline of 38% over the coming months. (See AMC stock analysis on TipRanks)