It could have been a great day for
AMC Entertainment Holdings.
Instead, shares of the movie theater chain sank 14% Thursday after
AMC
(ticker:
AMC
) announced it would offer up to $350 million of stock in an at-the-market offering.
Shares have fallen 76% this year and are on pace for their worst year on record, according to Dow Jones Market Data.
AMC has been selling stock to help pay off its debts.
“AMC still has over $4 billion in debt so it will take time to right-size the balance sheet at this pace, particularly if shares fall this hard each time AMC announces any capital raising efforts,” Wedbush analyst Alicia Reese said in a statement to Barron’s Thursday.
Reese maintained her Neutral rating and $11 price target on the stock. She also said in a note that if AMC dilutes its share base too much, it risks losing its retail shareholder support. However, with its debt wiped out and industry trends improving, the company would be able to resume dividend payments and would likely begin repurchasing shares with excess cash flow.
“It is more likely that AMC will continue to focus on garnering shareholder support by only issuing shares when the need arises or when shares are trading at elevated levels.” Reese said.
AMC didn’t immediately respond to a request for comment.
On Wednesday, AMC reported third-quarter financials that beat Wall Street expectations, fueled by the performance of movie blockbusters Barbie and Oppenheimer.
Looking ahead, AMC expects the effects of the writers and actors strikes will be felt in 2024, although both strikes have now ended. The company also noted it has had strong viewings for Taylor Swift: The Eras Tour and now has solid expectations for the release of Renaissance: A Film by Beyoncé.
Even as domestic audience is off 16% from 2019, the company is making 30% more per patron through concession sales.
“These results reflect AMC’s promising growth path to recovery in the post-pandemic era,” wrote Benchmark analyst Mike Hickey, who rates the stock as a Hold without a price target.
AMC got hit hard during the pandemic. With lockdowns and customer fears of catching Covid-19, the company was at risk of closing its doors for good. It didn’t help that AMC took on a lot of debt before Covid’s arrival in the U.S., as the company bought smaller movie chains and invested in upgrading theaters.
The stock then got picked up by meme traders in January 2021, who bought AMC shares in an attempt to squeeze institutional short sellers. AMC hit its record closing high on June 2, 2021.
Chief Executive Adam Aron has been an outspoken supporter of the meme trade, and in August 2022, the company issued about 517 million preferred equity units, or APEs, to be traded on the New York Stock Exchange in an attempt to help pay off debts. The name APE was a homage to the retail investors that bought up large amounts of AMC stock.
APE shares were eventually converted into AMC stock, and every one APE unit a trader had converted to 1/10 of one share of AMC. This allowed the company to sell more stock to raise money to pay its debts.
Unfortunately for AMC, Thursday proved investors don’t like to see their shares diluted, and the stock’s continued reputation as a meme trade has stopped it from benefiting from financial results like those reported on Wednesday.
Write to Angela Palumbo at [email protected]
Read the full article here