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Meme stock frenzy outcome is positive overall: AMC analyst

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AMC ANALYST, Macquarie Group Senior Analyst, Chad Beynon, joins Yahoo Finance to discuss the state of AMC after the ‘Reddit Mania’ led to a share rally and how the new investors are playing a role in the company’s future plans.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: Well, we were just talking mostly GameStop. Let's turn it to AMC, which, of course, has been the other sort of textbook-- if there is a textbook-- meme stock. And bring in Chad Beynon, who covers the stock over at Macquarie. Chad, it's a tough job, but somebody's got to do it, I guess. You've got a neutral rating on the stock. You've got a $6 price target. And you basically say, no theater stock has ever traded at this kind of a valuation. So what do you do from a valuation perspective and trying to crunch the numbers on something like this?

CHAD BEYNON: Thanks, Julie. Thanks for having me. You know, I'd say we're continuously improving our process in terms of, you know, how we're recommending our stock valuations to institutional holders. We've been looking at, you know, some of the option trading, some of the volume, some of the correlations with other meme stocks in the past couple weeks.

And, you know, this stock that went from mid teens up to $60 has kind of reverted back to $45. So we're not going to continuously update our price target, you know, every week or every couple days. Obviously, there were a few important fundamental characteristics that came out last week with the equity raises. But we're still analyzing. We're still improving our due diligence.

As you mentioned, fundamentally things are getting better. But we're still not back to where movie theater attendance was back in 2019.

BRIAN SOZZI: Chad, we just talked with a hard core believer in a GameStop. Really couldn't articulate what the fundamentals of the company are. Didn't really have a well defined vision for what GameStop will be five years from now. As an analyst who crunches the numbers and talks to sources and contacts, what do you think about that?

CHAD BEYNON: It's a great question. There's a lot of posts and a lot of retail investors who are pitching the fundamental view. And they talk about some of these things, like management changes, or business improvements, or changing the strategic vision of the company. And then you kind of cross that with everything else that's going on in these names that are trading hundreds of millions of shares a day.

I think it's good that there's a bigger group of people educating themselves on fundamentals, on stocks. And I think most people understand that some of these names are just momentum plays. So if what we get out of all this is a group of people that, you know, tested the waters, learned a little bit, hopefully didn't lose too much money, I think the outcome is positive. But what we continue to tell people is to really just understand, similar to what you talked about at the beginning of the show, that just because the stock is a $5 stock or a $50 stock, that doesn't really equate them to another $5 stock or $50 stock.

JULIE HYMAN: Chad, what should AMC do with the money that it raised? I mean, should it buy more theaters? Is attendance going to come all the way back? Cause if it buys more theaters, then does it just have more half empty theaters?

CHAD BEYNON: Yeah, the three things that we're focusing on, one, they have about $6 billion of conventional debt. Half is bond, half is bank. Those bonds have traded up from lows around $0.20 on the dollar. Now they're around par. So one of the options would be to buy back or pay down some of that conventional debt.

The second thing is, pay down the deferred leases that their landlords were able to help them with. So they have $450 million of deferred leases that they will have to contractually pay at some point in the next two years.

And then the third thing is M&A. You know, I think talking M&A could be helpful with some of these assets, you know, if they believe that they can buy at an accretive level. However, I definitely don't recommend that just because your stock is trading at 50 times EBITDA, and maybe there are some assets at 5 to 10 times EBITDA that that always equates to an accretive acquisition. So the first two would be the ones that I would point management to before they look to really grow the business.

JULIE HYMAN: Interesting stuff. Chad, thank you so much. Chad Beynon, Macquarie Group senior analyst who covers AMC.