AMC Theatres Analyst "Increasingly Confident" Exhibitor Can Avoid Bankruptcy

AMC Theater Generic - H - 2020

B. Riley FBR's Eric Wold upgrades his rating on the movie theater company's stock from "sell" to "neutral."

B. Riley FBR analyst Eric Wold, who previously predicted that cinema giant AMC Theatres would have to file for Chapter 11 bankruptcy by the summer due to the impact of the coronavirus pandemic, on Monday upgraded his rating on the company's stock from "sell" to "neutral," saying he was "increasingly confident the company can avoid bankruptcy during the shutdown."

He also boosted his price target from 25 cents to $4, writing: "After speaking with management over the weekend, we came away increasingly positive about both the ongoing rent flexibility discussions with landlords and management's using the shutdown period as an opportunity to evaluate historical spending levels in order to drive a more efficient model going forward — in an effort to position AMC to de-lever the balance sheet after [its] latest debt offering."

With a new $500 million debt offering unveiled last week, AMC improved its liquidity. Said Wold: "After our previous estimate that AMC had roughly three to four months of liquidity without any revenues, management confirmed that projection, with a new estimate of liquidity that is sufficient through a partial reopening time line into Thanksgiving."

The analyst said he remains "optimistic for a late-June reopening time line" for U.S. cinemas. "Even though AMC has historically operated with a 16 percent seat utilization rate year-round, which gives some comfort in operating profitably under these new [social distancing] protocols, we acknowledge there will be an impact on weekend attendance levels, even should demand rebound to prior levels," Wold concluded.

He reduced his attendance estimates for the second half of 2020 and 2021 "under strict/moderate physical-distancing protocols and potentially weaker movie-going behavior." That brought down his 2020 revenue and adjusted earnings before interest, depreciation and amortization estimates from $4.15 billion and $291 million, respectively, to $3.10 billion and $67 million. He also cut his 2021 estimates from $5.51 billion and $717 million to $5.21 billion and $707 million. 

AMC management "expects to use this opportunity to take a fresh look at all spending levels that, historically, may have seemed appropriate," Wold also highlighted. "With the added debt load, we would expect an increased focus on de-leveraging over, at least, the next 12 to 18 months."