Up +600% YTD, is AMC really that bad?

AMC theaters (AMC) tops our TrackstarIQ Data search almost every week lately.

Whether it’s institutional advisors or retail traders, EVERYONE keeps an eye on this name.

As vaccines hit arms and states loosen restrictions, the world doesn’t seem as bleak as a year ago for the theater chain.

And I know what you’re already thinking…

Could AMC be the value play of the century?

Quite possibly.

But rather than speak in hypotheticals, let’s do some nitty-gritty analysis.

What is the financial health of the chain? 

And more importantly, what are their plans for the future?

Because there is a big difference between surviving and thriving.

Where they stand

AMC Theaters is the poster child for a hard-hit business during the pandemic. Lockdowns kept customers from theaters, while production companies pushed more content through streaming services.

The company hemorrhaged cash in 2020 to the tune of $1.13 billion. In 2019, AMC pulled in $579 million in operating cash flow.

In layman’s terms – they went through two years of cash in 2020.

Here’s a bulleted list of other important highlights:

  • As of March 5, 2021, AMC was operating 527 of 589 domestic locations (89.4%) and 78 of 356 international locations (21.9%).
  • AMC raised $2.2 billion in gross cash proceeds from new debt and equity offerings.
  • Creditors and landlords agreed to more than $1 billion in concessions.
  • The company raised an additional $80 million from asset sales.

Taken together, this tells us AMC focused on raising cash to survive yet remains at limited operational capacity.

To give you an idea of the split between international and domestic profits, nearly 75% comes from the U.S. with 25% coming from international markets. The fact that U.S. operations resumed first is a net positive.

Digging into their operations, you’ll notice the largest costs on their income statement are rent and impairment.

What should also be apparent is how drastically revenues collapsed in 2020. 

While some expenses in theater operations are variable with attendance, most are fixed like rent. That puts exceptional pressure on the company during lockdowns.

Financial health

Proactive moves by management might have saved the company from extinction. However, they’re not out of the woods yet.

Here are a few key financial health metrics.

  • Current cash on hand stands at $308 million.
  • Long-term debt increased from $4.733 billion in 2019 to $5.696 billion
  • Raised $56.1 million in capital through the issuance of an additional $15 million shares of stock

It’s the last one of these we want to focus on.

Total shares outstanding went from 109.3 million last August to 460.3 million.

That’s a jump of ~421%.

At their height in 2015, shares hit just above $33.

If you take into account the recent dilution, that puts the share price somewhere around $7.83 today.

We’ve seen a range lately of just below $2 to over $20.

Currently, prices trade around $12.

Put this into context

Let’s recap several points here to round out this analysis:

  1. AMC has over 4x the number of outstanding shares it did a year ago.
  2. The cash burn from 2020 would take two years to recover from operations.
  3. Operations remain limited domestically into Q2 of 2021, with international operations barely above 20%.
  4. Cash on hand remains virtually unchanged from a year ago
  5. Yet, long-term debt increased by nearly $1 billion

Could AMC theaters pop 20% or see a massive short squeeze? 

Absolutely.

Trading and investing are independent of each other.

But from a practical valuation standpoint, the company is priced well beyond perfection with a sprinkle of some serious growth.

So as an investor, you need to ask yourself whether this company, headline-generating as it is, should be part of your portfolio.

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