According to Wedbush Securities equity research analyst Alicia Rees, AMC Entertainment Holdings Inc. is in good shape, boosted by moviegoing trends and the outcome of this week’s key shareholder vote. On Tuesday, shareholders of AMC AMC, -9.59% voted in favor of the company’s proposal to convert AMC Preferred Equity Units APE, -13.41% into shares of common stock. Rees said the result is good news for AMC as it tries to pay down its significant debt burden. “They have to raise the cash,” she said. “[The vote result] gives them a lot more flexibility.” AMC exited 2022 with $4.949 billion in debt, down $220.1 million from a year earlier. At the end of 2022, the company’s cash and cash equivalents totaled $631.5 million. Speaking at Tuesday’s special shareholder meeting, AMC CEO Adam Aaron hailed what he described as a “landslide victory.” The CEO praised the company’s shareholders for the “wisdom” they displayed in their vote. “You gave us the tools we needed to fight the good fight on your behalf,” he said. Related: AMC shareholders approve ‘APE’ conversion in ‘Landslide Victory’ but stock tumbles Over the past two years, AMC has been on a roller-coaster ride that has taken it from victim of an epidemic to meme-stock phenomenon. AMC used the sharp rise in its share price to tap into equity and debt markets, raising $917 million in January 2021. In February, AMC reported its 14th consecutive quarterly loss, although the company lowered its targets for losses and revenue in the holiday quarter. Wedbush’s Reese told MarketWatch that he has a positive outlook on the recovery of the movie theater industry. The analyst firm expects the North American box office to reach at least 75% of 2019 levels before the pandemic hits. The analyst firm also expects a 15% to 20% year-over-year increase over 2022. “Within all of these dynamics, AMC is in a really good position,” Reese said. Moviegoers gravitate toward premium large format screens, she explained, which bodes well for movie theater chains. “AMC has the largest footprint of IMAX screens in North America, they also have a partnership with Dolby Theatres,” she said. “Additionally, they have their own premium large format screens.” The analyst also pointed to the company’s efforts to target lucrative movie theater markets. “They’re shutting down underperforming screens,” she said. “In turn, they’re looking for some great theater assets in high-performing DMAs [designated market areas]” NOW WATCH: AMC stock tumbles after 14th straight quarterly loss, fourth straight year in the red Reese said Wedbush’s underperform rating for AMC is tied to a valuation based solely on fundamentals. Of the seven analysts surveyed by FactSet, three have a hold rating and four have a sell rating for AMC. AMC shares tumbled following Tuesday’s shareholder meeting, and are down 10% on Wednesday, outpacing the S&P 500 index’s 1.4% decline. APEs are down 14.1% on Wednesday. The movie theater chain’s stock is up 2.7% in 2023, and APEs are up 20.5%. But Jamie Lumley, an analyst at research firm Third Bridge, is bullish on AMC’s prospects. “AMC’s holding of this view underscores the fact that the company is on shaky footing and requires capital to help it navigate the continued difficult environment for theater operators.” Watch now: AMC asks NYSE and FINRA to ‘watch closely’ in its stock trading While this week’s shareholder vote is the centerpiece of AMC’s ongoing battle to eliminate debt, court proceedings are also moving forward. In February, the Allegheny County Pension Fund filed a lawsuit against AMC in the Delaware Court of Chancery, alleging that AMC’s issuance of the APE hindered the will of shareholders who wanted to prevent further stock dilution. Speaking during Tuesday’s meeting, AMC CEO Aaron reiterated his desire to “vehemently oppose” the company’s claims. The CEO explained that the AMC is unable to implement the proposals voted in the meeting, pending a verdict by the court. The court has scheduled the hearing on April 27. “The vote result shows that there is a path for AMC to raise much-needed capital, but there is still some uncertainty in the hearing in April,” said Third Bridge’s Lumley. “However, even with additional funding, the road ahead for AMC faces its fair share of challenges.” “While there is some insulation in entertainment spending in a recessionary environment, overall this is not conducive to AMC revenue growth,” he added.
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