Analyst downgrades AMC to 'sell' despite recent stock spike

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Wall Street analyst Eric Handler downgraded AMC to ‘sell’ Monday, despite the movie theater chain’s recent stock spike and announcement that it wouldn’t file for bankruptcy anytime soon.

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Handler, of MKM Partners, said AMC’s stock has been “decoupled” from the fundamentals and should be sold, adding that the shares could fall to $1 this year.

Lifted by investors from Reddit’s chat group WallStreetBets, AMC stock rose over 30 percent Monday morning. AMC’s stock stabilized to just over 6 percent to about $14.10 in midday trading.

IG GROUP RESTRICTS TRADING ON GAMESTOP AND AMC DUE TO 'EXTREME VOLATILITY'

Although the stock climbed $4.63 or 54 percent on Friday, it has now recovered just 50 percent of the 57 percent plunge it suffered last Thursday as trading platform Robinhood continues to restrict buying in runaway stocks.

Handler slashed his rating on AMC to ‘sell,’ after being at neutral since May 2020. The analyst also halved his 12-month stock price target, to $1 from $2, noting that while liquidity isn’t an issue for 2021, “achieving solvency came at a steep price.”

An AMC movie cinema is shown before opening Friday, Jan. 29, 2021, in Garland, Texas. Major indexes opened lower on Wall Street Friday, Jan. 29, while shares of GameStop, AMC and several other stocks being targeted by a rowdy community of amateur inv

The analyst cited the stock’s dilution in the wake of the company’s efforts to raise money by issuing new stock to retail investors, as well as its ballooning debts. He also raised concerns that recent trading “has decoupled AMC’s share price and its valuation.”

The analyst acknowledged last week’s positive news, namely that the near-term prospects of bankruptcy have been avoided as the struggling movie theater chain has raised $1.2 billion in fresh capital over the past couple months.

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“However, equity shareholders have been diluted by roughly 75 percent over the last couple months and there is still approximately $5.7 billion of debt, a total which is growing each quarter due to deferred interest payments which are tacked on to the principal balance,” Handler said. “There is also the overhang of $450 million of deferred rents which will some day need to be addressed.”

Handler estimates that AMC currently has about 440 million shares outstanding, based on recent company filings and announcements of at-the-market [ATM] stock offerings and debt exchanges. That compares with the total 137.4 million Class A and Class B shares the company had at the end of October.

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“It would not be surprising to see AMC explore the possibility of another ATM offering as a result of the company’s elevated stock price,” Handler said. “Additional exchanges of debt for equity is likely another path management will explore.”

AMC’s stock has skyrocketed 506 percent just this year, while the S&P 500 index has declined 0.1 percent.

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