Carmike Purchase Is 'Highly Favorable' For AMC Entertainment

Wedbush reiterated its Outperform rating on AMC Entertainment Holdings Inc AMC saying the soon-to-be completed Carmike Cinemas, Inc. CKEC acquisition would generate about $125 million in incremental EBITDA in 2017.

Acquisition Approval

The comment came after the Department of Justice approved AMC’s acquisition of Carmike upon certain conditions, including divestiture of 15–20 theaters.

“After divestitures, we assume AMC will add roughly 2,738 screens, over $750 million in total revenue, and after synergies we tentatively expect $125 million in incremental 2017 adjusted EBITDA and $15 million in free cash flow,” analyst Michael Pachter wrote in a note.

Further, AMC could use cash from the sale of divested theaters and National CineMedia shares to cut debt, reinvest in its circuit with additional luxury upgrades, and/or acquire additional theater circuits.

Pachter also sees upside to the AMC’s $35 million annual cost savings estimate given “AMC’s expertise in upgrading theaters, its strong relationship with IMAX, and its ability to renegotiate film rents with the studios.”

Pachter maintains his $41 price target on AMC shares.