Wall Street analyst Eric Handler lowered AMC to “ sell ” Monday, despite the cinema chain’s recent spike in inventory and the announcement that it would not file for bankruptcy any time soon.
Handler, of MKM Partners, said AMC’s stock was “decoupled” from basics and should be sold, adding that the stock could fall to $ 1 this year.
Raised by investors from Reddit’s chat group WallStreetBets, AMC stock rose more than 30 percent Monday morning. AMC’s stock stabilized at just over 6 percent to around $ 14.10 during afternoon trading.
Although the stock is up $ 4.63 or 54 percent on Friday, it has now recovered only 50 percent from the 57 percent drop it suffered last Thursday as trading platform Robinhood continues to restrict buying runaway stock.
Handler downgraded its rating on AMC to ‘sell’ after being neutral since May 2020. The analyst also halved his 12-month price target from $ 2 to $ 1, noting that while liquidity isn’t an issue for 2021, solvency came at a high price. “
The analyst cited the stock dilution in the wake of the company’s efforts to raise money by issuing new shares to retail investors, as well as rising debt. He also expressed concern that recent trading has “decoupled AMC’s stock price and its valuation.”
The analyst acknowledged last week’s positive news that the prospects of short-term bankruptcy have been avoided as the struggling movie theater chain has raised $ 1.2 billion in fresh capital in recent months.
“However, shareholders’ equity has been diluted by about 75 percent in recent months and there is still about $ 5.7 billion in debt, a total that is increasing each quarter as a result of deferred interest payments added to principal,” Handler said. “There is also the overhang of $ 450 million in deferred rents that must someday be addressed.”
Handler estimates that AMC currently has approximately 440 million shares outstanding, based on recent company filings and at-the-market announcements [ATM] share offers and debt exchanges. That’s comparable to the total of 137.4 million Class A and Class B shares the company held at the end of October.
“It wouldn’t be surprising to see AMC explore the possibility of another ATM offering as a result of the company’s high stock price,” Handler said. “Additional debt to equity exchanges is likely another path that management will explore.”
AMC’s stock has skyrocketed 506 percent this year, while the S&P 500 index is down 0.1 percent.