To say AMC (AMC) stock’s trading activity over the past week has been extreme would be an understatement. As one of the high-profile names involved in the short-squeeze drama, the past 5 trading sessions have had amazing peaks and troughs. If excitement is what you came for at AMC, you got it in spades.
The recent action might be good for news headlines, but it’s a distortion of reality, according to MKM analyst Eric Handler.
“In our view,” the analyst said, “The recent volatility and spike in the company’s stock, thanks to the Reddit/WallStreetBets crowd, has decoupled AMC’s share price and its valuation.”
The good news, though, is that AMC has solved its pressing liquidity issues and has staved off bankruptcy. Since mid-December, the company has raised $1.2 billion of “fresh capital.” On the other hand, shareholders have paid the price for the equity raises, with roughly 75% share dilution. Furthermore, the company is still loaded with debt. $5.7 billion of it, a total “which is growing each quarter due to deferred interest payments which are tacked on to the principal balance.”
That’s not all. There is also the “overhang of $450mn of deferred rents” which the company is going to have to deal with at some point.
Add into the mix, reduced 4Q20 revenue and adjusted EBITDA estimates and the anticipated months of further cash burn due to Covid-related depressed attendance rates, and Handler warns AMC is a very risky proposition right now.
“The emotion behind the #SaveAMC movement could carry the shares higher in the near-term,” the analyst said, “But we believe this valuation-be-damned momentum is not sustainable over the long term.”
Based on all of the above, Handler downgraded AMC from Neutral (i.e. Hold) to Sell, and slashed the price target from $2 to $1. Going by Handler’s new forecast, there will be a depressing 89% drop from current levels.
Overall, the rest of the Street appears to be reading from the same program notes. Additional Sell plus 2 Holds add up to a Moderate Sell consensus rating. While not quite as violent as Handler’s prediction, the $2.68 average price target suggests shares will fall ~70% in the year ahead.
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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.