AMC Entertainment Holdings Inc (AMC) Is a “Show Me Story” from This Bull’s Eyes

Michael Pachter still recognizes upside to the revised lower price target on AMC despite bleak FY:17 outlook.


While AMC Entertainment Holdings Inc (NYSE:AMC) may have shaken some of Wedbush analyst Michael Pachter‘s bullish confidence, he continues to back the cinema operator after a shoddy box office showing weighed on its third quarter results. This will be “far from the last picture show” for AMD, and Pachter keeps his captivation to the fourth quarter and into next year, both of which will be the front row center feature attraction after this quarterly stumble.

Losing $42.7 million for the quarter was a sharp sting for investors who saw $30.4 million in revenue this time last year, leading shares to plummet 7% on Monday on back of the print’s release.

In reaction, the analyst reiterates an Outperform rating on AMC stock while lowering the price target from $20.50 to $15.50, which represents a close to 28% increase from current levels. (To watch Pachter’s track record, click here)

For the third quarter, AMC posted $1,179 million in revenue, outperforming what Pachter deems “low expectations” of his own calling for $1,149 million as well as the Street’s $1,160 million. Adjusted EBITDA also realized a beat for the entertainment company, with $147 million trouncing both the analyst’s estimate of $141 million and the Street’s $138 million. EPS even fared better than expected, with $(0.33) better than the analyst’s and the Street’s forecast $(0.36).

The AMC management has clipped guidance for the year, cutting back on its revenue forecast of $5,100 to $5,230 million down to $5,000 to $5,200 million, adjusted EBITDA from $860 to $900 million to $810 to $865 million, and EPS from $(1.17) to $(0.97) down to $(1.35) to $(1.20).

For 2017, the analyst continues to keep his expectations for revenue at $5,170 million but dials back his forecasts for adjusted EBITDA from $877 million to $836 million and scaling EPS down from $(1.06) to $(1.24) to take under account the rocky third quarter results, weaker than anticipated fourth quarter revenue, as well as a “relatively high fixed cost structure.” For 2018, Pachter tweaks revenue expectations from $5,274 million to $5,270 million, adjusted EBITDA from $901 million to $880 million, and EPS from $0.29 to $0.18 as a reflection of lofty expenses.

“In explaining the change to FY:17’s outlook, management pointed to October’s weak domestic box office performance, and existing consensus estimates which were already below prior guidance. In our view the updated guidance is reasonable and reflects rather moderate assumptions for November and December given what we anticipate will be a robust holiday release slate. We expect AMC to over-index on Star Wars given its various premium large format screens with IMAX, Dolby, and its own Prime at AMC screens,” write the analyst.

Pachter concludes on a positive note glancing ahead: “AMC will remain a show me story until management demonstrates that the ‘new normal’ is EBITDA margins of 18% or higher. Our bias is that the company can earn significantly more than we have modeled in 2018, and we believe that should it demonstrate its earnings power for several quarters, it can trade at an EV/EBITDA multiple at the high end of its historical 7 – 8.5x range.”

The word of the Street sings largely in the consumer goods player’s favor, with TipRanks analytics exhibiting as a Buy. Out of 9 analysts polled by TipRanks in the last 3 months, 7 are bullish on AMC stock, 1 remains sidelined, while 1 is bearish on the stock. With a return potential of nearly 78%, the stock’s consensus target price stands at $21.94.