Hollywood is leaving AMC Entertainment (AMC) behind. One movie studio after another is postponing the debut of its feature films until 2021, leaving little more than reruns for movie theaters to show.
Regal Theaters parent Cineworld chose to reclose all of its theaters for the foreseeable future as a result, but AMC is determined to stick it out. That's creating financial problems for the theater operator, and its stock is approaching the lows it hit when the coronavirus pandemic first broke in March.
Investors need to decide whether AMC's deeply discounted value makes it a screaming buy, or if it's in real risk of going bankrupt.
The situation certainly looks bleak. Even AMC just warned it was in danger of running out of cash by the end of the year and may attempt to raise capital by issuing more stock or debt.
Yet after Bloomberg reported the theater chain was considering seeking the protection of bankruptcy courts, CEO Adam Aron said that reporting around that option was "wholly inaccurate" as the company is instead focused on raising new capital.
It's important to note that Aron also said if AMC was not successful in its efforts, it would have to consider other options, but the company is not yet near that crossroads. With its stock trading around $3 per share, AMC has shed about 60% of its value this year.
The company is in a bind that's being exacerbated by its rival's decision to close again. While movie studios keep pushing the release dates of their movies further and further out, by shutting down theaters and leaving few, if any, venues available for movie showings, studios also have little incentive to reverse course and release a film.
AMC said that as of Oct. 9, 83% of its U.S. theaters and 86% of international theaters have reopened since they were shut down earlier this year in response to the coronavirus pandemic. While AMC has served over two million moviegoers in the past month or so, that's still 85% below levels achieved last year. The company also noted the bulk of its U.S. theaters that remain closed are located in just five states, but importantly, they represent nearly one-fourth of its total revenue.
Moreover, theater capacity is being limited to between 20% and 40%, and the industry is under additional pressure as the films that have been released have failed to live up to expectations.
Theaters had been hoping the Christopher Nolan spy thriller Tenet would draw big audiences, but the film has only generated $48 million in domestic box office receipts since its Sept. 3 release.
Checking the cushions for change
AMC raised about $350 million this past summer when it reorganized its debt in a deal with private-equity firm Silver Lake, but with over $5.5 billion in corporate borrowings at the end of June, the theater operator's ability to take on more debt is seriously constrained.
The chain recently said it had raised $37.8 million after selling nine million shares out of its 15 million share offering, meaning it could raise nearly $18 million more if it sold the remaining shares at current price levels. This is not a stock for the faint of heart, and any investment in it should only be considered for the most speculative portion of an investor's portfolio. But there is a case to be made that AMC Entertainment will make it through this dark period.
AMC's theaters are valuable assets in a typical year, and an investor, likely another private-equity firm, may see an opportunity in keeping the chain afloat until normalcy returns to the industry. The company can also sell off assets to keep itself afloat. In August, it raised $77 million from selling its theaters in the Baltic region of Europe. It could carve off other regions as well.
Because AMC is trading at a small fraction of its admittedly meager sales, the stock does have some appeal. I can't give the theater operator a ringing endorsement as a buy as I did last month when studios were still planning to show films this year, but there's still Wonder Woman: 1984 on the 2020 docket, and AMC is trying out new schemes like renting out entire theaters to customers for $99.
Making a small bet that AMC Entertainment just scrapes by this year and recovers in 2021 might not be a bad idea either.