3 Reasons Loop Capital Is Defending AMC

AMC Entertainment Holdings Inc AMC is suffering significant selling pressure after its shares shed nearly 10 percent of their value over the past month — despite the market reaching new all-time highs.

Analysts at Loop Capital issued a note to combat the selling pressure and defend the stock, outlining three key points explaining why the selloff is unwarranted. Loop is maintaining a Buy rating on AMC with a $39 price target.

Justifying The Buy

1. AMC stock breached its 200-day moving average.

“Reason No. 1 for the sell-off is very simple; the stock fell below its 200-day moving average," Loop Capital's managing director David Miller said in Tuesday's note. The primary reason for this was because AMC raised $640 million in a secondary offering to pay $350 million in bridge loan debt incurred from the company’s Carmike acquisition in late 2016.

2. Holders of secondary shares are looking for a pop.

Loop Capital analysts believe certain funds took shares of the secondary offering, intending to dispose of them whenever there was a near-term event surrounding the stock, particularly the latest earnings release. “Despite the fact that AMC posted a record quarter, record year, record per-cap spending, record adjusted EBITDA margins and record membership in its loyalty program, the supply of stock hitting the NYSE was likely too high for the AMC specialist to retain a price over $30 per share.”

3. AMC should lower ratio by one full turn.

“We believe AMC will generate a total of $600 million in adjusted FCF, and pare that ratio a full turn lower, and that’s a conservative schedule," Miller said in the note.

Loop Capital believes the recent downturn supports a compelling entry point, given what they consider trough valuation, and see now as a opportunity to get in ahead of peak-level commerciality in the Studio slate for 2017 and 2018.

Related Link: Expect A Noisy 2017 From AMC As Acquisitions Lead To Transformation

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