Shares of top exhibition circuit AMC Entertainment were upgraded by MKM Partners analyst Eric Handler from “sell” to “neutral” due to its progress in recovering from the devastating impact of COVID-19.
Handler also raised his price target for the stock to $5 from $1. AMC shares gained 4% in early trading Wednesday to about $5.32. Shares in Cinemark, the No. 3 U.S. exhibitor, were up 8% and Regal Cinemas owner Cineworld also popped 8% in London.
The return of moviegoing at significant scale this summer is the main reason for improved sentiment around AMC. Since the depths of the COVID-19 crisis in March, when theaters shut down in many parts of the world, the company’s stock has more than doubled, though it remains low by the standards of the past couple of years.
“Near-term bankruptcy risk appears to have subsided,” the analyst wrote in a note to clients. The lower risk is due to “the combination of (1) the increasing likelihood movie theaters in the U.S. and Europe will be able to re-open with new Hollywood content in the July/August time frame; and (2) the company’s improved liquidity position.”
In a recent SEC filing, AMC said it had $300 million in cash on its balance sheet as of March 31. It also raised $500 million through a private debt offering. That should allow it to operate through the end of 2020.
“The gradual re-opening of the economies in the U.S. and Europe already allows for theatres in some markets to resume business operations. AMC has stated it will not reopen until there is new content to be shown. In our view, last week’s launch of the new trailer for Tenet was a step in the right direction showing Warner Bros. is feeling comfortable enough with a sufficient number of markets to be open in mid-July (or soon after) to start allocating marketing dollars to the opening of this film.
Financially, Handler noted, AMC is not yet on solid ground. “We remain concerned with AMC’s overall debt load of $5.35 billion and annual interest payments, which we believe are approaching $350 million,” he wrote.
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