Is AMC Stock Overvalued? Blame Retail Investors, Analyst Says

Zinger Key Points
  • Wedbush analyst Alicia Reese maintains AMC with an Underperform and lowers the price target from $4 to $2.
  • AMC CEO Adam Aron should pay down company debt with the newly issued APE shares, Reese says.

Wedbush analyst Alicia Reese maintains AMC Entertainment Holdings Inc. AMC with an Underperform rating and lowered the movie theater chain's price target from $4 to $2.

Shares of the Leawood, Kansas-based company are significantly overvalued, “as long as the retail shareholders are involved," Reese told Yahoo Finance. "[I’m not sure] that it will go back to its fundamental value.

The analyst compared AMC to Cinemark Holdings Inc. CNK, which has a similar EBITDA, but a fraction of the shares outstanding and "less than half the debt.”

Read more: First Look At The APE Chart As AMC Entertainment Preferred Equity Units Begin Trading

“The $22 price target we have for Cinemark could be in-line with AMC should they buyback a lot of shares, and repay their debt," Reese added. "They’re not in the positon to do that on shares, but with the APE shares, they are in a position to repay a significant portion, if not all of their debt."

Reese is referring to the new meme-friendly AMC Entertainment Holdings Preferred Equity Units APE, or APE shares for short

The Threat Of Bankruptcy

AMC neared bankruptcy at the height of the COVID-19 pandemic, and borrowed money at high interest rates to survive. More recently, however, the company has started to reduce its annual interest expense in an effort to lessen the weight of its debt.

AMC reduced the amount of debt it owed last month by repurchasing a portion of its 10% second lien debt that is due in 2026 for $50 million, or a 31% discount, for about $72.5 million.

“This action is one more step along our recovery glidepath,” said AMC CEO Adam Aron in a late July statement.

“We will continue to seek creative and meaningful strategies to further strengthen our balance sheet and create value for our shareholders in the future.”

Since then, the retail investor-backed company split its stock to introduce APE shares to quickly raise cash to potentially pay off its debt — something Reese said the company should do.

Related: Short Seller Jim Chanos Buys APE Shares: Why Is He Taking A Long Position In AMC Preferred Equity?

“[Aron] has the opportunity now to use those APE shares — of course with more dilution — to repay a significant portion of the company’s staggering debt balance and reaccelerate the growth and upgrades,” Reese said.

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Posted In: Analyst ColorEntertainmentShort SellersPrice TargetReiterationTopicsSmall CapHotMarketsAnalyst RatingsMediaTrading IdeasGeneralAdam AronAlicia ReeseJim Chanos