Michael Pachter Expects AMC's Starplex Buy To Boost Biz By 7%

In a report issued Tuesday, Wedbush analyst Michael Pachter and his team reiterated an Outperform rating and $40 12-month price target on shares of AMC Entertainment Holdings Inc AMC.

The company announced on Tuesday that it will purchase national independent theater chain Starplex for $172 million. According to the note, the experts expect the Starplex acquisition to be accretive by 2016, extending AMC’s footprint screen base by 7 percent.

The acquisition, however, does not only increase the number of screens owned by AMC, but also its geographic and demographic footprint, providing it access to previously untapped small-to-mid size markets.

Another initiative expected to drive further growth is the install of additional reclining seats in roughly 80 screens over the next five years.

Investment Thesis

The thesis behind Wedbush’s Outperform rating is pretty straightforward: the analysts believe that “AMC is in the early innings of the implementation of initiatives to increase concessions and admissions revenues through reinvestment in its current asset base offering a high return on investment opportunity.”

AMC seems to be beating other major exhibitors in “piloting and focusing on rolling out differentiated theatre offerings such as dine-in theatres, luxury reseating, and serving alcoholic beverages,” the experts add. So far, these strategies have shown considerable returns -- in some cases more than 100 percent cash-on-cash returns in just one year.

Moreover, Pachter and his team think the company’s large portfolio and exposure to bigger DMAs create opportunities to ameliorate its competitive positioning “through these initiatives that may not make as much strategic sense for other exhibitors to focus on.”