Why This AMC Entertainment Analyst Is Turning Bearish Ahead Of Q3 Earnings

AMC Entertainment Holdings, Inc. AMC theater admissions are slowly and steadily returning to pre-pandemic levels.

One Street analyst isn't swayed by the improvement and turned bearish on the stock Thursday. 

The AMC Analyst: Alicia Reese downgraded AMC shares from Neutral to Underperform with a $12-month price target of $7.50.

AMC Analyst Says Retail Interest Could Wane: A majority of retail ownership will eventually cash out of AMC and move on, Reese said in the downgrade note.

The exhibition industry is likely to recover as attendance begins to rebound, the analyst said. Third-quarter attendance began to meaningfully pick up once top-tier titles were released to theaters after extended delays, and quarter-to-date box office for the fourth quarter has been very encouraging, she said. 

Although the fourth quarter is unlikely to reach pre-pandemic levels, the rebounding attendance bodes well for fiscal years 2022 and 2023, Reese said.

AMC made the best of its "meme stock" status in the first half of 2021 by selling shares at a premium, raising significant capital, the analyst said. The company used the capital infusion to pay down debt, acquire several quality screens and return to expanding its footprint in Europe and the Middle East, she said. 

"Volatility in shares of AMC is likely to continue, driven by trading momentum unrelated to AMC's fundamentals by retail investors whose time horizons remain unclear." 

Related Link: AMC's Stock Curls Higher After Strong October Movie Ticket Revenue: What's Next?

Q3 Expectations For AMC: AMC, which is scheduled to release its quarterly results Monday after the close, will likely report revenues of $760 million versus the consensus estimate of $717 million, Reese said. The bottom-line results will likely reveal a loss of 48 cents per share, narrower than the consensus loss estimate of 53 cents per share, the analyst said.

Wedbush's expectations are premised on AMC holding on to 24% of the domestic box office, domestic attendance of about 35 million and an average ticket of $9.52, up 1.6%, the analyst said. International attendance will likely to be at 57% of the third quarter of 2019 levels, she said. 

"We think pent-up demand in its markets coupled with aggressive marketing to its patrons drove moviegoers to its screens," Reese said.

Expenses are trending back toward normal levels, particularly as theater-level operating costs rise with COVID-19 protocols and wage increases, she said.

AMC Price Action: In premarket trading, AMC shares were down 0.39% to $40.63.

Related Link: AMC Entertainment Is 'Just Weeks Away' From Announcing Entirely Different Business Line, CEO Says