AMC Entertainment Holdings Makes Its Debut on Wall Street's Big Screen

On Dec. 18, investors received a new way to invest in the entertainment industry: AMC Entertainment Holdings  (NYSE: AMC  ) . The company, which was taken private just over nine years ago, sold $331.2 million worth of shares; this beat company expectations by $17 million. Let's take at look at the market's latest IPO and see if AMC Entertainment is worth a closer look from Foolish investors. 

Making its debut
For its IPO, AMC Entertainment's priced its shares at $18 each. These shares quickly jumped 9.3% to $19.68 after their debut. In 2004, AMC Entertainment Holdings was purchased by CCMP Capital Advisors LLC. CCMP then merged with Loews Cineplex Entertainment, and was then acquired in May 2012 for $2.6 billion by Dalian Wanda Group (owned by China's third-wealthiest man, Wang Jianlin). To reward AMC's most loyal customers, Wang offered AMC Entertainment Loyalty Program members the opportunity to purchase $100 to $2,500 worth of company shares ahead of the IPO without any attached fees. Members of the loyalty program represent 20% of the theater chain's weekly business, and the program had a total of 2.5 million members as of September 2013. AMC Entertainment plans to use the $331.2 million generated from its IPO to pay down $2.1 billion in debt as well as continuing the expansion and improvement of its theatres. Dalian Wanda Group still owns 80% of the company after the IPO.

Choosing the best theater for its value
Although AMC Entertainment is $2 billion in debt, it still holds the title for the second-largest theater chain in the United States with 343 theaters and 4,950 screens. This compares to Regal Entertainment Group  (NYSE: RGC  ) , the largest theater chain in the U.S., which consists of 379 theaters and 7,382 screens. l Rounding out the top three U.S. theater chains is Cinemark Holdings  (NYSE: CNK  )  with 298 theaters and 3,895 screens.

Here's how Wall Street is currently valuing the three competitors:

Company Name

Market Capitalization

Estimated 2013 Earnings

P/E Ratio

AMC Entertainment Holdings

$1.8 Billion

$113.4 Million

15.9

Cinemark Holdings

$3.74 Billion

$210 Million

17.8

Regal Entertainment Group

$2.98 Billion

$170 Million

17.5

The good and the bad
For Foolish investors looking to make a bet on the continued growth of the theatre industry, AMC Entertainment has interesting strengths and weaknesses for Foolish investors to consider. For one, AMC has structured its business model to focus operations in fast-growing urban areas. While this leads to higher traffic in its theatres, the company must cope with higher rent costs per theater than its peers. This factor, coupled with the large debt load the company has, gives AMC Entertainment a lower profit margin than Cinemark Holdings or Regal Entertainment. However, this should not be an issue as long as the economy continues to do well and their middle to high income customers residing in urban areas continue to go to the movies. On the other hand, should the industry experience a downturn, the company's high debt load and higher rents could prove to be an even tougher challenge.

Awaiting opportunities
As previously mentioned, AMC Entertainment is still majority-owned by China's third richest man Wang Jianlin. This gives AMC a great advantage over its major competitors to largely expand operations in China, which is quickly becoming the largest consumer market in the world. This advantage alone makes AMC worth a closer look by Foolish investors. There are movie theaters in almost every town and city in the United States, most of which are owned by one of these three large companies. China, on the other hand, is still catching up to the West in terms of industrialization and has over one billion residents; thus, presenting a huge opportunity for introducing the AMC theater experience to China's population and retaining their business in the long-run. Even though both Cinemark and Regal Entertainment have smaller debt loads and currently earn more money for shareholders, AMC has a lot of growth potential in its future as it attempts to both pay down its debt load and continue its expansion into higher growth markets along with higher costs.

Foolish takeaway
AMC Entertainment's IPO is one of several successful IPOs this year. It also provides another option for investors seeking to participate in small or large part in the entertainment industry. Given AMC's growth prospects in China and focus on providing a high quality movie-going experience to consumers in high-growth urban markets the company is definitely worth a closer look by Foolish investors.

No Pitch

 


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