AMC's Post-IPO Performance Set to Continue

Rising quickly from its market debut in December, the theater chain is enjoying strong industry tailwinds and will keep rewarding investors.

Mar 1, 2014 at 8:30AM

AMC Entertainment (NYSE:AMC) is one of the nation's giant theater chains, yet the company only recently has made itself available to public investors. Since its IPO in mid-December, AMC's stock has gone straight up -- rising more than 20% to date. The company is enjoying the industry tailwinds of growing movie attendance and tremendous concession-sales margins. With more and more product innovation in the latter category, and a strong slate of films to keep consumers in the seats, there is little reason to doubt that AMC will continue its attractive top- and bottom-line growth. The question for investors is whether the post-IPO honeymoon period will match long-term expectations.

At the box office
It wasn't a smash hit of a fourth quarter for AMC as the company posted a slight decline in attendance and just a 2.3% sales increase, but overall 2013 was a great year for the theater chain. The trends in the industry bode well for AMC and its peers, such as Regal Cinemas (NYSE:RGC). Average ticket prices are driving higher and higher, largely boosted by the increase in 3-D and IMAX film offerings.

As mentioned above, concessions remain one of the strongest parts of the business. In the fourth quarter, AMC saw a 3.7% bump in food and beverage revenue per patron. Similar to Regal and other players, AMC is expanding its food and beverage offerings, in some cases offering the options of full meal service and alcohol. For the full year, food and beverage sales rose nearly 6% while average ticket prices moved up 3%.

AMC appears to be pursuing less of a screen-count growth strategy than its biggest rival, having only opened one new theater and tacking on 12 screens and acquiring 37 screens from other theater companies. The company closed four theaters representing 29 screens.

How it compares
AMC trades at just under 12 times forward earnings with an EV/EBITDA (trailing) of 9.8 times. Though the company retired hundreds of millions in debt upon its share offering, AMC still holds a sizable $2.4 billion.

Regal Cinemas -- which is larger in market cap: $2.9 billion versus $2.15 billion -- is growing its screen count largely via acquisitions. In Regal's latest quarter, the results looked very similar to AMC's: 3.5% growth in concession sales per person and record revenue and EBITDA for the full year 2013 (AMC had a record year, as well). The company trades at richer 14.8 times earnings, but has an EV/EBITDA of roughly nine times.

Investors should keep in mind that Regal offers a faster-growing business, despite its larger size. Just last year, the company acquired 500-screen strong Hollywood Theaters for roughly a quarter of a billion dollars. Add that to a 4.7% dividend yield, and the stock is a more comprehensive offer than AMC.

Still, either are compelling investments considering the industry tailwinds. Theater attendance waxes and wanes from quarter to quarter, but a look at longer-term trends show a steady increase in the past few years. With the concessions business providing copious amounts of cash to the core film segment, AMC will likely see continued strength both in operating performance and stock price.


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