AMC is a screaming sell and only worth 1 cent, analyst Richard Greenfield says

Greenfield believes the movie-theater industry will continue to exist for decades as people look for escapes outside the home, but he’s more skeptical about the future of AMC.

“There is a substantial disconnect between the future of aggregate movie theater attendance and in turn AMC’s earnings power relative to its current enterprise value and over-levered capital structure,” he wrote.

Looking ahead to 2022, Greenfield doubts that AMC will be able to be able to “meaningfully exceed” $600 million in earnings before interest, taxes, depreciation, and amortization (Ebitda), whereas it generated $771 million in 2019, before the pandemic took hold.

Some pandemic-related fears of being in crowded spaces could dampen attendance, he argued. But more crucially, studios have shaken up the traditional “windowing” structure, which gave theaters a long window of exclusivity before people could watch movies at home. The movie-theater business will likely continue in some form, but Greenfield thinks “it will never be the same” as streaming becomes a bigger part of the equation.

For AMC, decreased attendance means financial pressure. In Greenfield’s 2022 scenario that sees AMC raking in $600 million in Ebitda, he notes that the company “still has over $400 million of interest expense from its 8x leverage.” In addition, the company cut back on capital expenditures during the pandemic, but “it feels like maintenance capex is at least $200 million,” he wrote, leaving aside the fact that AMC may have to catch up on spending deferred during the COVID-19 crisis.

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“The end result is a company with 8x leverage and no free cash flow,” he wrote. “If attendance fails to rebound as we expect, not to mention declines long-term as release windows shrink and consumer behavior evolves, we suspect AMC will need to issue even more equity in the future, meaningfully diluting current equity holders to stay afloat.”

AMC shares have been volatile lately, joining a class of so-called meme stocks that won favor with retail investors taking aim at heavily shorted names. AMC’s stock was up as much as 18.4% earlier in Wednesday’s session, but it pared back gains around midday and was recently up around 3%.

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The theater operator is due to report December-quarter results after the closing bell Wednesday. Analysts surveyed by FactSet expect that the company lost $3.03 a share on a GAAP basis and $3.24 a share on an adjusted basis, while generating $142 million in revenue. A year earlier, AMC delivered positive adjusted earnings of 35 cents a share on revenue of $1.46 billion.

AMC shares have run up over 156% over the past three months, while the S&P 500 index
SPX,
+0.82%
has gained 6.3%.