Stock Wars: AMC Vs. IMAX

Benzinga’s weekly Stock Wars matches up two leaders in a major industry sector, with the goal of determining which company is the better investment.

This week, the duel is between two major cinema chains: AMC Entertainment Holdings Inc AMC and IMAX Corp IMAX.

The Case For AMC: This company traces its roots to the brothers Maurice, Edward and Barney Dubinsky and their 1920 purchase of the Regent Theatre in downtown Kansas City. The brothers would later change their surname to Durwood, which they also applied to their business as it expanded to other Midwestern cities.

Over the years, the company changed its name a few times while introducing new concepts to the theatrical exhibition world, including the multiplex, stadium seating and cupholder armrests. The company also acquired other chains while undergoing its own shifts in ownership. Today, AMC operates 593 theaters in the U.S. and 335 theaters in 14 European countries and in Saudi Arabia.

And, of course, the company has been the center of attention of certain retail investors who fancy themselves as “apes” — a simian invasion that invoked a Charlton Heston-worthy derision from hedge funds and the Wall Street elite.

In its most recent quarterly earnings report, the second quarter data published on Aug. 9, AMC recorded total revenues of $444.7 million, up from the disastrous $18.9 million eked out in second quarter 2020 when the COVID-19 pandemic forced the closure of movie theaters. The company noted that the bulk of its revenue came from the U.S., with most of its overseas theaters still shuttered through the first two months of the quarter and only reopening in June.

AMC’s operating loss of $296.6 million was an improvement from the $471.6 loss of one year earlier, while its diluted loss per share of 71 cents was also better than the $5.38 loss in the second quarter of 2020.

Chairman and CEO Adam Aron noted the company “raised yet another $1.25 billion of new equity capital (before commissions and fees) in the quarter, boosting our quarter ending liquidity to more than $2 billion (including cash and undrawn revolving lines of credit) which is about double the previous highest ever such mark in AMC’s 101-year history. We believe this gives AMC financial staying power to navigate boldly amidst coronavirus waters.”

Aron added that the skein of new blockbuster films that turned up on its second-quarter screens “drove successive new pandemic-era box office records — and fortunately for us, as guests returned to our theatres, they splurged on our food and beverage offerings, which admittedly is quite a high-margin business.”

AMC opened for trading on Wednesday at $47.83, a closer distance to its 52-week high of $72.62 than to its 52-week low of $1.91.

The Case For IMAX: This Canadian company emerged at the tail-end of the widescreen technologies that dominated theatrical exhibition in the 1950s and the experiments in multi-screen projections popular at World’s Fairs in the 1960s, but proved impractical for commercial presentation.

The single-screen IMAX, with a projection size 10 times larger than traditional 35mm picture frames, debuted at the 1970 Expo ’70 in Osaka, Japan, with the short film “Tiger Story.”

Initially, IMAX presentations were limited to short films screened in specially constructed theaters at science centers, museums and special event exhibitions. A few of these films resonated with the wider film environment: the 1976 “To Fly!” was added to the Library of Congress National Film Registry in 1995 and the 1999 animated short “The Old Man and the Sea” won an Academy Award.

The first IMAX feature-length film was the 1991 concert documentary, “The Rolling Stones: Live at the Max,” but Hollywood didn’t start paying attention to the commercial potential of the format until Walt Disney Co.’s DIS “Fantasia 2000.”

Today, IMAX can be found in more than 1,500 theaters in over 80 countries and territories — including AMC venues in the U.S. Unlike AMC, IMAX has placed a strong focus on building its Asian presence, particularly within China.

In its most recent quarterly earnings report, the second quarter data published on July 27, IMAX recorded total revenue of $51 million, up from the pandemic-ravaged $8.9 million from one year earlier. The company added that 90% of its international venues are now open and capacity limitations on these settings are starting to abate.

IMAX’s net loss attributable to common shareholders was $9.2 million, an improvement from the previous year’s $25.9 million, and the diluted per-share loss of 16 cents was better than the 44-cent loss of the second quarter of 2020.

“We believe the table is set for a dramatic rebound for blockbuster moviegoing beginning this fall and throughout 2022, as a powerful slate of Hollywood tentpoles representing many of the biggest global franchises in entertainment arrives in theaters worldwide,” said CEO Richard L. Gelfond.

IMAX opened for trading on Wednesday at $15.73, sandwiched between its 52-week range of $10.50 and $25.05.

The Verdict: Over the past week, the two companies have shared headlines. In both instances, these stories said volumes about the company’s perceived strengths and challenges.

On Sept. 1, Macquarie Capital’s Managing Director and Senior Analyst Chad Beynon put himself in the spotlight by downgrading AMC from Neutral to Underperform while maintaining a $6 price target that was 87% below its then-current trading level.

“AMC remains a riskier investment, given rent obligations, higher leverage and a difficult margin trajectory following a more normalized recovery,” he said, adding AMC was burdened with $420 million in deferred rent along with its annual $1 billion rent expense. He also predicted the apes who have championed AMC since the beginning of the year will eventually grow bored of it.

“We do think after Labor Day when some of these investors are back at work and maybe they are looking at other things — maybe they are gambling on sports — maybe the bloom comes off the rose a little bit,” he said in a Yahoo Finance interview.

Beynon also maintained an Outperform rating for IMAX while adding a dollar to raise its target price to $26, claiming that it was “more insulated than peers given recovering trends in China, leading margins and a well-capitalized balance sheet.”

Predictably, Beynon’s tsk-tsking about AMC created a mild decline in its stock performance, but his praise of IMAX failed to give its stock a boost.

But it's hard to ignore the astonishing Labor Day holiday weekend at the box office, with Disney’s “Shang-Chi and the Legend of the Ten Rings” breaking records.

Both AMC and IMAX praised the ka-ching factor from “Shang-Chi” — but AMC was particularly grateful in noting that the two million Americans who came to its theaters over the holiday weekend surpassed the attendance level of the pre-pandemic 2019 Labor Day weekend and marked its highest attendance since its venues reopened after the start of the public health crisis.

And this is where AMC’s detractors fail to understand why its stock ascendancy is not a silly fad generated by people on Reddit with too much time and money on their hands.

The “Shang-Chi” experience demolished percolating bugaboos that streaming services will chomp away at the cinema box office while the delta variant will scare away people from theaters. AMC — and the other theater chains, for that matter — will be around for a lot longer than many sketchy prophets are predicting, and no ape is going to jettison shares once the theatrical environment permanently surpasses its pre-pandemic levels.

Does AMC have financial challenges? Yes, of course. Will it resolve its problems? Maybe not right away, but certainly within a closer time frame than Beynon might admit. And considering the Labor Day holiday weekend is traditionally among the weakest opening time frames — “Shang-Chi” was the only new film in nationwide release for that reason — just imagine when things pick up into the autumn and then for the holiday-season Oscar-fodder titles.

IMAX is a fine investment, though perhaps somewhat underperforming at this time — and this is curious, especially in view of its Chinese stake. But the idea of AMC falling to $6 per share is, to be blunt, an ignorant fantasy. In this Stock Wars duel, AMC is the better stock to pursue.

Photo: Jorge Franganillo / Flickr Creative Commons.