AMC Analyst: Valuation Concerns Override Expected Fundamental Improvement

AMC Entertainment Holdings, Inc. AMC shares have picked up momentum, adding roughly 36% so far this week. 

The AMC Analyst: B Riley Securities analyst Eric Wold downgraded shares of AMC from Buy to Neutral and maintained a $16 price target.

The AMC Takeaways: The downgrade is purely a valuation call, as shares of the theater chain have moved above B Riley's price target, Wold said in a note.

With movie theater capacity limits due to be eliminated soon in New York and California, the domestic box office is poised for a rebound, the analyst said.

A pent-up demand for movie-going is evident in the other regions of the world and there's an impressive, blockbuster-fueled film slate and updated distribution agreements with studios, he said. 

The analyst sees the domestic industry box office returning to pre-COVID-19 levels by late 2022.

Related Link: Why Wanda Group Is Trimming Its Holdings In AMC Theater Chain

On top of the studio agreement AMC struck with Universal, additional announcements could be forthcoming, Wold said.

This will further solidify exclusive theatrical windows during the industry recovery, the analyst said. 

"Considering the head start AMC theaters enjoyed while the circuit's main competitor, Regal, remained closed from last October through early April, we believe this continued awareness with moviegoers and ability to remain engaged as the industry came online should play well with customer loyalty."

AMC accounts for roughly 50% of domestic IMAX box office, positioning it well to achieve box office share gains, with the blockbuster-heavy slate, he said. 

Additionally, AMC's improved balance sheet eliminates liquidity concerns, Wold said. 

With a nearly 75% rally in the stock since B Riley's upgrade in early May, positive expectations regarding AMC's outlook and expected recovery are all priced in, the analyst said. 

AMC Price Action: AMC shares were up 20.9% at $19.84 at last check Wednesday. 

Related Link: Why This Analyst Says AMC Entertainment Stock Is 'Dramatically Overvalued'