Bank Of America Downgrades AMC Entertainment, Says Stock 'Feeling A Little Frozen'

Movie theater chain AMC Entertainment Holdings Inc AMC remains well-positioned within the exhibition marketplace but the bearish case for the stock can still be made, according to Bank of America.

The Analyst

Bank of America analyst Bryan Goldberg downgraded AMC Entertainment from Neutral to Underperform with a price target lowered from $14 to $7.

The Thesis

The box office environment in the fourth quarter was "sluggish" with only one notable success story, Walt Disney Co's DIS "Frozen 2," Goldberg wrote in a note. The release of "Star Wars" could improve sentiment but trends will likely deteriorate throughout 2020. In fact, the industry is up against difficult year-over-year comparisons with multiple 2019 hits including "Captain Marvel," "Avengers: Endgame," "Toy Story 4," and "The Lion King."

Other factors that contributed to the downgrade include intense competition against "small screen competitors" such as Netflix Inc NFLX and the current dividend yield of nearly 10% could be cut in September.

AMC's capex could slow down in 2020, which Goldberg said bodes well for free cash flow in the coming year. However, a declining long-term EBITDA is likely to prevent any deleveraging in the near term. As such, the stock is now "feeling a little Frozen."

Price Action

Shares of AMC Entertainment traded lower by 3% at $7.85 at time of publication.

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