AMC Shares Slammed Amid Q2 Warning; Loop Cuts Target But Maintains Buy

AMC Entertainment Holdings Inc AMC shocked investors on Tuesday with a second-quarter preannouncement, which look "particularly ugly," according to Loop Capital Markets' David Miller. Yet despite a 25 percent plunge in AMC's stock the analyst is parting ways with his bullish stance as he maintains a Buy rating but with a price target lowered from $39 to $33.

AMC's guidance implies that AMC underperformed the overall U.S. market, which is "highly unusual" under the company's CEO Adam Aron's leadership, Miller explained. Meanwhile, expenses in the quarter were "out of whack," which may imply that something "very unique" occurred in the quarter on the expense side.

AMC's poor performance in the quarter could be in part explained by a $202.6 million impairment charge related to its investment in National Cinemedia, the analyst continued. This is "highly unusual" since AMC's peer Regal Entertainment Group RGC is also an equity investor in Cinemedia but it didn't take a write-down in its earnings report last week.

Looking Beyond The Poor Performance

"Nevertheless, because AMC's accounting team apparently determined internally that the market value of NCMI declined below its carrying value, the decline is considered 'other than temporary,'" the analyst explained.

Last, AMC's guidance for the full-year, including a reduction in cap-ex to $600 million from a prior $700 million to $750 million estimate is in factor what "most investors wanted anyway."

Not included in the analyst's research report is a development out of China in which AMC's parent company, Dalian Wanda, is reportedly under investigation by Chinese regulatory bodies, TheStreet noted. The Chinese company could be facing scrutiny related to the funding of its foreign acquisitions.

Finally, if AMC's stock trades as low as $15 per share it will imply a "mere" 6.6x 2018 EBITDA on an EV basis, which marks the "lowest we've ever seen any exhibitor entity trade." The analyst's price target implies the stock will eventually re-rate higher to a 9.0x pro-forma, out-year EBITDA multiple.

At time of publication, shares of AMC were down 24.76 percent at $15.65.

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