Roth/MKM maintained a Sell rating on AMC Entertainment (NYSE: NYSE:AMC) with a steady price target of $4.00, despite acknowledging improvements in the company's outlook.
The firm raised its third-quarter estimates after the quarter's box office performance surpassed expectations, signaling a positive turn as the industry enters a robust movie cycle anticipated to last over two years.
AMC's debt maturities have been extended, offering some relief as the company is now positioned to reduce its net leverage significantly in the coming year.
However, the firm emphasized that AMC's absolute debt levels are still high, interest coverage remains low, and the current valuation of the company is considered elevated. The $4 price target is based on 7.5 times multiple of the firm's projected 2025 adjusted EBITDA.
The firm adjusted its revenue and adjusted EBITDA estimates for the third quarter to $1.326 billion, a 6% decrease, and $160 million, a 17% decrease, respectively. These figures are up from the previous estimates of $1.293 billion in revenue and $145 million in adjusted EBITDA.
The revised estimates are in line with consensus on revenue and modestly above consensus on adjusted EBITDA, with the U.S. box office expected to slightly underperform the industry average.
AMC's balance sheet reflects the impact of a $2.45 billion debt refinancing in July, which extended most debt maturities to 2029-2030. This move increases AMC's annual interest expense by approximately $52 million to around $408 million. With a solid box office year expected in 2025, the firm projects AMC's net leverage to decline from an estimated 11 times at the end of 2024 to about 6 times by the end of next year, improving the company's interest coverage and financial flexibility.
Free cash flow (FCF) for AMC is expected to become positive in the following year. If the company can revert to a 50% conversion rate of adjusted EBITDA to operating cash flow, it could generate approximately $100 million of FCF, assuming capital expenditures of $200 million. The potential conversion of exchangeable notes could increase AMC's share count significantly, adding to the already expanded share base since the start of the pandemic.
In other recent news, AMC Entertainment has taken crucial steps to improve its financial standing by eliminating $152.9 million in debt through equity issuance and appointing Marcus Glover to its Board of Directors.
Despite a slight increase in AMC's estimates, Citi has maintained its Sell rating on the company's stock, while Roth/MKM and Macquarie have issued Sell and Underperform ratings respectively. On the other hand, B.Riley has taken a neutral stance.
Meanwhile, Amcor (NYSE:AMCR) has initiated significant leadership changes with the appointment of Peter Konieczny as CEO, Fred Stephan as Chief Operating Officer, and David Clark as Chief Sustainability Officer. Additionally, Graham Chipchase has been nominated for election as a non-executive director.
InvestingPro Insights
Recent InvestingPro data provides additional context to AMC Entertainment's financial situation, aligning with Roth/MKM's analysis. The company's market cap stands at $1.53 billion, with a negative P/E ratio of -3.44 for the last twelve months as of Q2 2024, reflecting the ongoing profitability challenges mentioned in the article.
InvestingPro Tips highlight that AMC is "quickly burning through cash" and "operates with a significant debt burden," which corroborates the article's discussion on the company's high debt levels and interest coverage concerns. The tip noting that AMC's "short term obligations exceed liquid assets" further underscores the financial pressures the company faces, even as it works to extend debt maturities.
Despite these challenges, AMC's revenue for the last twelve months as of Q2 2024 was $4.49 billion, with a modest growth of 5.41%. This aligns with the article's mention of improved box office performance and the expectation of a strong movie cycle ahead.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide deeper insights into AMC's financial health and market position.
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