Loop Capital maintains $1 price target on AMC stock: here’s why
- The stock just does not reflect fundamental value, according to Loop Capital analyst.
- The theatre attendance has been declining steadily since the year 2000.
- AMC announced that it will sell 8.5 million of its shares to Mudrick Capital for $230 million in cash.
AMC announced today that it has entered into an agreement to sell 8.5 million of its Class A Common stock to Mudrick Capital Management L.P. for $230.5 million in cash. The shares of the company are up 10% this morning after the announcement of the share sale.
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The CEO of AMC, Adam Aron, said that the company will be using the proceeds from the latest fundraising for theatre acquisitions, enhancements at existing theatres and deleveraging the balance sheet.
Gould maintains a price target of $1 on the stock. Let’s look at his reasons for the price target.
Stock does not reflect fundamentals
“The stock just does not reflect fundamental value. I realize that occurs for a while but eventually it should come back to the fundamental value,” said Gould.
Long-term theatre stocks have traded at 7.5x forward EV/EBITDA on average. Even if they issued 100 million shares, our $1 price target will go up to $5. He thinks it will be smart for the company to issue as many shares as possible at the current prices and the proceeds can be used for acquisitions or deleveraging the balance sheet. But that will not change his fundamental view on the company.
The industry fundamentals have been in a steady decline
The theatre attendance has been declining steadily since the year 2000, according to Gould. In addition to that, movies have a shorter run in the theaters.
New platforms have emerged that have gained muster with investors and Netflix is the perfect example of that. Netflix has become the largest producer of movies. Only a few of their films hit the theatres and the ones that do hit theatres just have a one week run at best.
Other movie studios such as Disney are also releasing their movies first on pay-on-demand platforms and are seeing customer acceptance.
Shares of AMC opened at $31.80 this morning and are currently trading at around $29.36.