AMC Theatres Gets Analyst Upgrade: "Near-Term Bankruptcy Risk Has Subsided"

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AMC Theatres cinema

MKM Partners moves from "sell" to "neutral," saying cinemas in the U.S. and Europe are likely to "reopen with new Hollywood content in the July/August time frame" but is "concerned with AMC's overall debt load."

MKM Partners analyst Eric Handler on Wednesday upgraded the stock of exhibition giant AMC Theatres from "sell" to "neutral," arguing that "near-term bankruptcy risk appears to have subsided." He raised his fair value estimate to $5 from $1.

Handler said that risk has lessened "considerably" as a result of the "increasing likelihood movie theaters in the U.S. and Europe will be able to reopen with new Hollywood content in the July/August time frame and the company's improved liquidity position."

The analyst also emphasized: "We are still concerned about AMC's net leverage and absolute level of debt but believe with the expected reopening of the company's circuit within the next two months there is sufficient cash on hand to get through the end of the year."

Highlighting that AMC has said it would not reopen until there is new content, Handler said "last week's launch of the new trailer for Tenet was a step in the right direction, showing Warner Bros. is feeling comfortable enough with a sufficient number of markets to be open in mid-July (or soon after) to start allocating marketing dollars to the opening of this film."

He added: "We were also pleased to see last week's announcement that Los Angeles County has set a target date of July 4 for a reopening of all businesses. Similar announcements from the municipal governments in New York City and/or Chicago (the country's first and third largest markets, respectively) would provide additional certainty to the view that new feature film content could be available by mid-July."

AMC, controlled by Chinese conglomerate Dalian Wanda Group, furloughed or laid off more than 26,000 employees as the novel coronavirus crisis shuttered its circuit in March. The largest cinema chain in the U.S. and the world then went even further, furloughing all of its 600 corporate employees, including CEO Adam Aron.

Exhibitors have been hit hard by the pandemic, as they have high fixed costs without any revenue. Analysts initially discussed a potential bankruptcy filing from AMC, but after the company raised more funds, many ultimately decided that wouldn't be necessary.

"April's debt raise has shored up the balance sheet for now," Handler wrote in his Wednesday report. "That said, we remain concerned with AMC's overall debt load of $5.35 billion and annual interest payments, which we believe is approaching $350 million."

AMC Theatres' stock rose in premarket trading on Wednesday after closing up 11.6 percent at $5.11 on Tuesday.