On August 11th, AMC Entertainment Holdings, Inc. (NYSE: AMC) won court approval for its MC Preferred Equity (NYSE: APE) restructuring plan which would allow the movie theater chain to move forward with its restructuring plan. This plan includes converting APE shares into AMC common shares, conducting a 1 to 10 reverse split, and issuing shares to raise capital that is much needed by the company. Following this news, AMC stock dropped 25% in after-hours trading accompanied by a 25% run in APE stock which is expected since now 1 APE share should be equal in value to 1 AMC share. Having said that, the outlook for AMC appears to be brighter than ever as the company can now stave off bankruptcy talk and continue improving its business, especially after the company reported its first profitable quarter in 4 years.
AMC Stock News
As things stand, AMC is the world’s largest theater brand and as such it has the potential to generate a significant quantity of revenue from a single blockbuster. For example, AMC made more than %70 of the box office gross from Avatar: The Way Of Water, and since it made $2.32 billion AMC made more than $1.62 billion. Keeping that in mind, two highly anticipated potential blockbusters are on the horizon.
Pink Nuke
On July 21st both Oppenheimer and Barbie are coming out in theaters which is significant since these movies mark a shift away from repetitive storytelling in Hollywood. Over the course of the past few years, Hollywood has developed superhero fatigue, and repetitive storytelling and unnecessary sequels have been flooding the market. Thankfully, these issues do not apply to Barbie and Oppenheimer.
These two movies are vastly different, however, it is that difference that makes each story appealing. When it comes to Barbie, Its existential narrative is drastically different from Hollywood’s classical narrative and its hyperbolic comedic tone in regards to gender commentary also sets it apart.
On the other hand, Oppenheimer’s story is in many ways an inversion of Hollywood’s classical narrative where the main protagonist is viewed as an infallible character or morally justified. In short, both of these movies are unique stories and modern day cinemagoers are in search of genuinely unique stories that are not carbon copies of a cliche narrative. It is for this reason that these movies could shake the box office.
Additionally, Oppenheimer is directed by none other than Christopher Nolan, who is considered one of the best directors today. His involvement in Oppenheimer is a source of comfort for many moviegoers which is part of the reason why the movie is currently highly anticipated.
Both of these movies are about to be released while AMC stock is experiencing mounting short selling pressure. If these movies become box office giants, AMC’s revenues are likely to receive a much needed boost which would result in the stock running.
Short Data
In the meantime, AMC stock has a high short interest of 22.5% and 34.7% of its float on loan. At the same time, cost to borrow is extremely high at 206% and utilization is at 91%. In light of the stock’s short data, a major short squeeze could occur in AMC stock if Oppenheimer and Barbie prove to be the major hits they are expected to be.
Risks
Despite AMC’s short squeeze potential, the stock remains very risky due to the company’s financial situation. Currently, AMC is in dire need to raise capital and is incapable of doing so due to a lawsuit against the company’s planned 1 for 10 reverse split. Through this reverse split, AMC will have room to offer its shares to the public as the company’s outstanding shares are nearly maxed out. Based on this, the risk of bankruptcy could be extremely viable if AMC is unable to raise the cash it needs.
Another risk that could be facing AMC is Oppenheimer and Barbie not performing well at the box office due to the decline in moviegoers since the pandemic. If that is the case, AMC’s prospects could be bleak since both movies are arguably the most anticipated movie releases this year.
*Updated August 14th, 2023
Legal Saga is Over
At long last, AMC’s legal saga has finally been wrapped up with a settlement worth around $120 million contingent on its stock’s PPS. This settlement approves the movie theater chain’s conversion plan which allows it to convert APE shares into AMC common shares, execute a reverse split, and raise capital. This plan is likely to result in AMC receiving billions of dollars which might save the company from its looming debt crises. As things stand, the company has a means of survival which is an extremely bullish indication for a company that was previously fated to impending bankruptcy.
Currently, AMC has 519 million shares outstanding and APE has 995 million shares outstanding. The sum of these two figures – 1.51 billion – adjusted by the reverse split ratio will be the stock’s new float. Once the company effects the 1 for 10 reverse split, that figure should be around 151 million shares. Taking AMC’s latest closing price of $5.2 per share, the stock’s post-reverse split PPS would be around $52.
Given that AMC has 524 million in authorized shares, the company may issue up to 373 million shares, which if priced at the stock’s latest closing price, would amount to $19 billion, more than enough to cover all of the company’s $5 billion debt. If the company is able to eliminate all of its debt by raising capital through share issuances, AMC stock would be a viable long-term investment, especially with the movie theater giant finally returning to profitability in its latest Q2 earnings. With that in mind, the company may be set to witness a much more successful quarter in Q3.
Third Quarter Blockbuster Bonanza
Q3 started off with the opening of Barbenhiemer which is projected to bring in a substantial sum to the Domestic box office. So far, Barbie alone has raised more than $500 million dollars and Oppenheimer has raised $238 million domestically making it one of the top 10 grossing R-rated movies. Barbenhiemer aside, Q3 still has a few more potential blockbusters in store like The Nun II and Equalizer 3. Considering AMC’s status as the largest movie theater chain in the world, these blockbusters would allow the company to realize substantial revenues in Q3 which might see it report a second consecutive quarter of profitability.
Shorting AMC
As is, many investors are shorting AMC stock and buying APE in anticipation of the upcoming conversion. Since AMC is more expensive, and APE stock will be converted into it, it is expected that AMC will decrease in value and APE will increase in value due to the conversion until both meet at a similar price level. However, this dip might be a short-term thing given the bullish sentiment surrounding the conversion deal since it would effectively eliminate the company’s debt.
That said, AMC is highly shorted with a short interest of 27.4% and 38.4% of its float on loan and its short interest may continue increasing in the coming days due to the strategy of shorting AMC stock and buying APE ahead of the conversion. In this way, the stock may witness a short squeeze soon thanks to the growing bullish sentiment surrounding the company’s long-term prospects following the approval of its restructuring plan.
AMC Stock Financials
Q1 2023
According to its Q1 2023 report, AMC’s assets decreased QoQ from $9.1 billion to $8.8 billion and its cash balance also fell from $631.5 million to $495.6 million. On the other hand, total liabilities slightly decreased from $11.76 billion to $11.43 billion, however, current liabilities increased from $1.6 billion to $1.7 billion. Having said that, the most alarming thing in AMC’s balance sheet is the disparity that exists between its cash balance and its current liabilities. If not remedied, this issue could lead to bankruptcy.
AMC’s revenues have done surprisingly well in Q1 as they increased YoY from $785.7 million to $954.4 million. Meanwhile, operating expenses also increased YoY from $952 million to $1 billion. Despite the increase in expenses, AMC’s net loss decreased due to increased revenue resulting in a YoY decrease from $337.4 million to $235.5 million.
Q2 2023
According to AMC’s Q2 report, the company’s assets decreased from $9.1 billion at the beginning of the year to $8.6 billion due to its cash balance plummeting from $631 million to $435 million. This decrease is likely due to the company paying off its current liabilities which decreased from $1.69 billion to $1.5 billion. On that note, total liabilities experienced a slight decrease from $11.76 to $11.25.
When it comes to revenue, AMC experienced a YoY increase from $1.16 billion to $1.34 billion due to marginal improvements in ticket sales which increased from $651 million to $744 million, and FNB sales which increased from $396.7 million to $488.2 million. During this time, expenses increased slightly from $1.18 billion to $1.26 billion as a result of increases in depreciation and merger/acquisition costs as well as film exhibition costs. Having said that, AMC managed to achieve profitability for the first time in 4 years this quarter going from a $121.6 million net loss in Q2 2022 to a $9 million net profit in Q2 2022 as a result of its improved revenue.
Media Sentiment
@AMC_Apee believes a short squeeze may occur soon after AMC’s plan was approved by the court.
@BossBlunts1 is bullish on AMC’s prospects following court approval of its plan.
Technical Analysis
AMC stock is in a bullish trend and is trading in an upwards channel. Looking at the indicators the stock is above the 200, 50, and 21 MAs which is a bullish indication. Meanwhile, the RSI is approaching overbought at 65 and the MACD is neutral.
As for the fundamentals, AMC recently resolved its legal battle with a settlement that will allow it to move forward with its plan to raise capital to deal with its debt situation. In this way, any fears of the movie theater chain going bankrupt should be alleviated. With the stock near its 52-week low, the current PPS could be a good entry point as the drop in after-hours last Friday may have been an overreaction.
AMC Stock Forecast
Thanks to the recently approved settlement, AMC’s mounting debt crisis is likely behind it and the movie theater giant can now build on its successful Q2 where it returned to profitability for the first time in 4 years. Considering the successful releases of Barbie and Oppenheimer in Q3 as well as the anticipated releases of The Nun II and Equalizer 3 later this quarter, the company may be poised to post a second consecutive quarter of profitability which would boost the stock price significantly. Considering the stock’s growing short interest due to the strategy of shorting AMC stock and buying APE stock ahead of the conversion, a short squeeze may occur with more positive developments from the company – especially since it intends to start raising capital in mid-August.
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