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The Ratings Game: AMC missed ‘golden opportunity’ to pay down $5.4 billion debt with APEs, says analyst

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AMC Entertainment Holdings Inc. reports third-quarter results on Tuesday, with the meme stock darling expected to provide an update on its APE equity units.

The AMC Preferred Equity Units
APE,
-3.82%
,
or APEs, made their trading debut in August, sparking volatility and heralding the latest chapter in an eventful journey that took the cinema chain from a beleaguered pandemic victim to meme-stock phenomenon.

The APEs, which hit an intraday low of $1.41 on Monday, have fallen 74.8% since their debut. The dividend hit an intraday high of $10.50 on Aug. 22.

With its APE equity unit, AMC
AMC,
-5.66%

created something like a 2-for-1 stock split, marking the company’s latest effort in a fight over stock issuances. AMC is also taking aim at its massive debt burden with the APE special dividend. The name is a nod to the investors who turned the company into a meme stock, who often refer to themselves as “apes” or “ape nation.” AMC issued an APE for each of its roughly 517 million shares outstanding.

AMC’s third-quarter results on deck: Will the meme-stock darling shake off concerns of a box-office slowdown?

The dividend gave AMC a great chance to get rid of its debt burden, according to Wedbush analyst Alicia Reese.

“We think AMC lost a golden opportunity to pay down or even pay off its $5.4 billion debt balance when it first issued its APE shares, and now has a more difficult decision to make in terms of how to best utilize the shares,” she wrote, in a note released on Thursday. “In the meantime, AMC has continued to restructure its debt, acquire and upgrade quality screens while removing underperforming screens.”

In September, AMC unveiled plans to sell up to 425 million additional APEs, sending the equity units toward a new low.

Concerns of a box-office slowdown in August and September have swirled around AMC. In August, when AMC reported its second-quarter results, CEO Adam Aron spoke of the “dearth” of big titles being released in that month and September, adding that “things will slow for several weeks.” 

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Nonetheless, Wedbush analyst Reese sees positives looming on the horizon. “Theatrical exhibition is on the path to normalization, with a strong upcoming release slate over the balance of the year and throughout 2023,” she wrote, in the note. “That said, the volume of content has not yet returned to pre-pandemic levels, and release slate holes such as August through October were largely driven by production delays over the last year.”

Despite these challenges, AMC has the cash to weather the slump, she said, and is well-positioned for a strong fourth quarter and 2023, thanks to its “vast network” of premium large format screens. “Additionally, AMC is expanding its global network and upgrading theaters in Europe in the coming quarters,” Reese added.

At the end of its second quarter, AMC had cash and cash equivalents of $965.2 million.

Wedbush has an underperform rating and a $2 price target for AMC.

See nowAre you tempted to buy AMC’s new APEs? Be prepared to lose everything, the company warns

Analysts surveyed by FactSet are looking for AMC to report a net loss of $238 million, or 20 cents a share, compared with a loss of $224 million, or 27 cents a share, in the same quarter of last year. The company is expected to report sales of $961 million, up from $756 million in the same period last year, according to FactSet.

AMC’s admissions revenue is expected to be $552 million, compared with $421 million in the same period last year, FactSet data show. Analysts project concessions sales of $324 million, up from $263 million in the prior year’s quarter.

AMC’s stock has fallen 68.1% this year, outpacing the S&P 500 index’s decline of 20.1% over the same period. Over the last three months, AMC has fallen 63.8%, compared with the S&P 500 Index’s
SPX,
+0.96%

fall of 8.1%. Fellow meme stock GameStop Corp.’s
GME,
-2.83%

 stock has fallen 40.7% in the last three months.

While AMC remains a cause célèbre for a vocal community of individual investors, the company’s financial health is a cause for concern, according to data from RapidRatings, a company that assesses the finances of public and private companies.

RelatedIs the golden age of the meme stock rally over?

Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.

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