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Why AMC Entertainment Stock Just Dropped 7%

By Rich Smith - Apr 30, 2020 at 12:52PM

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What had gone up, just went back down.

What happened

Shares of movie theater operator AMC Entertainment (AMC -5.31%) had a great Wednesday, surging as much as 25% after the company initiated a war of words with Comcast (CMCSA -1.76%) over the latter's Universal Studios' plan to create a new business model in which it would begin releasing new movies simultaneously both in theaters (which AMC can charge for) and for streaming "over the top" (which AMC cannot charge for).

Today though, AMC stock is heading the other way -- down 7% in noonday trading.

Why?

Chalkboard drawing of stock chart arrow going up being erased and pointing back down

Image source: Getty Images.

So what

Two factors appear to be at work here. On the one hand, investors may be having second thoughts about just how strong a negotiating position AMC is in vis-a-vis Comcast. To AMC's mind, you see, Comcast's idea is "categorically unacceptable," and if Comcast goes through with its plan, AMC intends to stop showing Universal films in its theaters.

But here's the thing: Right now, AMC isn't showing anybody's films in its theaters, which remain closed under coronavirus-inspired social distancing restrictions. Whatever happens elsewhere in the economy, AMC is stuck in its own personal recession -- and no one knows when it will end. Seems to me, for the time being at least, AMC's ability to retaliate against Comcast consists of a threat to shout "stop...or I'll shout stop again."

Now what

And here's another thing: After yesterday's surge, AMC stock closed well north of $5 a share. Today it's trading down below $5 again. Meanwhile, analysts at Imperial Capital raised their price target on AMC shares this morning...but only to $3 a share.

As Imperial explained in its note, with its theaters closed currently and no one sure when they might reopen, AMC "had little to lose" by invoking the "nuclear option" of boycotting Universal yesterday. Regardless, best case, Imperial thinks AMC stock is worth only about 63% of what the shares cost today.

If it's anywhere near right about that, AMC's 7% stock slide today could be only the beginning.

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Stocks Mentioned

AMC Entertainment Holdings, Inc. Stock Quote
AMC Entertainment Holdings, Inc.
AMC
$13.38 (-5.31%) $0.75
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$39.13 (-1.76%) $0.70

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