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At the Movies with AMC Holdings

AMC Entertainment Holdings (AMC) — the world's largest operator of movie theaters — carries our highest investment recommendations of 5-STARS, or Strong Buy, explains analyst Tuna Amobi in CFRA Research's The Outlook.

The world's largest operator of movie theaters (film exhibitors), AMC owns and operates about 1,000 theaters and 11,000 screens in the U.S. and several countries in Europe and the Nordic regions with over 350 million guests per year.

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Its largest shareholder is Dalian Wanda Group Co., a privately held conglomerate in China, recently holding about 50.1% of AMC's outstanding common stock and 75.01% of its combined voting power through its majority ownership of the class B (super-voting) shares.

In recent years, the company’s growth strategy has been anchored on some notable domestic and international acquisitions. In January 2017, AMC acquired Nordic Cinema Group, the largest theater operator in seven countries in the Scandinavian Nordic and Baltic regions, for about $929 million in cash.

Earlier, in December 2016, it acquired Carmike Cinemas, then the fourth-largest U.S. theater chain, for about $1.2 billion in cash and stock. In November 2016, it acquired privately held U.K-based Odeon & UCI Cinemas, the largest theater chain in Europe, for about $1.2 billion in cash and stock.

Despite somewhat mixed first half 2019 results, we anticipate an improved film slate through the 2019 holiday season. Also, we see potential long-term upside to the return on invested capital (ROIC) with a continued global rollout of premium amenities and a new subscription-based customer tier (A-List), among notable strategic growth initiatives.

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Among the risks, we would be wary of potential adverse shifts amid further incursions from streaming, video-on-demand (VOD) and other digital outlets.

We see attractive upside for the shares based on our 12-month target price of $15, projecting an EV/EBITDA multiple of 14.4x our 2020 estimate, a notable premium versus the large media and entertainment peer group, and well above AMC’s historical averages. Also, we expect the company to sustain its recent dividend yield of about 8.5%.

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