Why This Analyst Says AMC Entertainment Stock Is 'Dramatically Overvalued'

AMC Entertainment Holdings, Inc. AMC shares have seen wild swings in a Reddit-driven rally, and the meme stock could be in for a big correction, according to an analyst at LightShed Partners.

This stands in contrast to the take of Wedbush analyst Michael Pachter, who recently doubled that sell-side firm's AMC price target from $2.50 to $5.

The AMC Analyst: Richard Greenfield initiated coverage of AMC shares with a Sell rating and 1-cent price target.

The AMC Thesis: The future of AMC is very much in doubt, and its  stock price is "dramatically overvalued," Greenfield said in the Wednesday initiation note. 

"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," the analyst said. 

It is unlikely the company's adjusted EBITDA will exceed $600 million in 2022, the analyst said.

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Apart from skepticism regarding how willing moviegoers will be to return to theaters, the theatrical release window is also likely to be a pushback, he said. 

The release windows between theatrical and various forms of home entertainment are dramatically short, and there is a continued steep ramp in subscription video on demand services, Greenfield said. 

The assumption that domestic AMC admissions will be down in the high-single digits in 2022 relative to 2019 is conservative, as is the assumption that international AMC admissions will be flat, the analyst said. 

AMC shares are trading at 15 times the adjusted EBITDA estimated for 2022, he said. 

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Going forward, EBITDA is likely to be on a secular decline, with effectively no free cash flow and an elevated debt-to-EBITDA ratio of eight times, Greenfield said. 

AMC Price Action: At last check, AMC shares were trading down 3.7% at $10.14. 

Related Link: Should Amazon Or Netflix Try To Acquire AMC In 2021?

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