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AMC Entertainment Is 38% Undervalued, Analyst Says

By Rich Duprey - Apr 5, 2021 at 8:21AM

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The theater operator is also upgraded to a buy over its smart use of an elevated stock price.

Although the market didn't like AMC Entertainment Holdings' (AMC -8.03%) plan to dilute existing shareholders by issuing 500 million shares of new stock to pad its savings account, at least one analyst on Wall Street apparently isn't concerned.

B. Riley Securities analyst Eric Wold upgraded the movie theater operator from neutral to buy and nearly doubled his price target on the stock to $13 per share from $7 per share. That implies he sees 38% more upside in AMC's stock from its $9.36 per share closing on Friday.

Masked moviegoers in theater

Image source: Getty Images.

It's been two years since AMC Entertainment traded at a price level so high (if you ignore January's Reddit-fueled mania), and it was on its way down back then.

The theater operator has taken on substantial debt to fund numerous acquisitions and had been spending a lot of money renovating its theaters, upgrading many to a dine-in style, to lure moviegoers back in.

Theater attendance has been in steady decline since its peak in 2002, and while the release of various blockbusters causes the numbers to occasionally spike, the trend is one of persistent decline.

Now it faces the prospects for reduced seating capacity and greater competition from streaming services.

Wold, though, says he is looking several years ahead. He told investors in a research note, "We have remained impressed with management's ability to weather the pandemic headwinds by both strengthening the balance sheet and negotiating with landlords to improve the cash runway into 2022." 

By diluting current shareholders through equity sales, AMC is seizing on the chance to reduce its debt load while the stock is elevated. Wold writes, "With management increasingly signaling the ability and willingness to utilize equity to reduce the debt load, we can now be more constructive on the upside opportunity for the shares."

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