Monday, January 27 will mark the end of the SEC-enforced 40-day quiet period on underwriter research that began with the December 17 IPO of AMC Entertainment (AMC) providing aggressive investors with a buying opportunity.
The conclusion of the quiet period will permit the IPO underwriters to release detailed positive research reports on the movie theater heavyweight into the market, likely leading to at least a brief rise in the price of AMC stock. Since initially pricing at $18 per share-at the low end of its expected price range of $18-$20 per share - AMC has seen modest gains, rising as high as $20.94 per share; the stock closed at $20.24 per share on January 17th. See our prior article here.
The firm's underwriters, including heavyweights BofA Merrill Lynch, Citigroup Global Markets, and junior underwriters like B. Riley & Co, Barclays Capital, Barrington Research Associates, Credit Suisse Securities, LOYAL3 Securities, FBR Capital Markets, Stifel Nicolaus, HSBC Securities, Piper Jaffray, and Wedbush Securities, will attempt to draw greater investor interest to AMC with the release of a flood of positive information beginning on the 27th.
Both the findings of recent academic studies and the results of our own research over the past two years have generated empirical evidence of a correlation between the quantity and visibility of a firm's IPO underwriters and a rise in the price of the firm's stock near the end of the quiet period. The increase in price generally appears several days in advance of the conclusion of the quiet period, as experienced investors purchase shares in the hopes of profiting from the underwriters' release of information. These investors realize that the underwriters will only publish positive information about a firm that they underwrote so recently. These early purchases create a perception of increased demand, placing upward pressure on the price of shares before the quiet period has actually expired.
Business of AMC
AMC is an extremely well-known chain of American cinemas that has been in operation since 1920. The firm has been behind industry innovations including the Megaplex and Multiplex movie theater formats. AMC owned or operated 343 North American movie theaters that featured 4,950 screens as of September 30, 2013. AMC holds the highest or second-highest position in terms of market share in big-market American cities including Los Angeles, Chicago, New York, Philadelphia, and Dallas.
The movie theater industry remains fragmented to a large degree, though there has been some apparent consolidation in the past decade: in 2012, the four largest exhibitors accounted for 62% of box office revenues, as opposed to 35% in 2000. AMC's top competitors include Cinemark Holdings (CNK), Carmike Cinemas Inc. (CKEC), Cineplex Inc, and Regal Entertainment Group (RGC).
Gerardo I. Lopez has served as the President and CEO of AMC since March 2009. He previously served as an Executive Vice President with Starbucks Coffee Company (SBUX) as well as President of the Handleman Entertainment Resources division of Handleman Company. Mr. Lopez is a member of the boards of Brinker International, Recreational Equipment, Inc, Open Road Films, and DCIP. He has a bachelor's degree in Marketing from George Washington University along with an M.B.A. in Finance from Harvard.
What Should Investors Do
AMC's impressive box office marketshare, along with its highly recognizable brand, make it a strong buy in the current recovering economy, which should lead to increases in disposable income and entertainment spending. The firm is profitable, having posted a net income of $84.8 million in the nine months ended September 30, 2013, and is making noticeable efforts to remain at the front of the pack in its facilities. Over the past two years, AMC has put over $120 million into its facilities - a wise use of funds, given that movie theaters must now market the experience of attending a cinema in order to compete with commonplace illegal downloading and inexpensive film-viewing options like Netflix.
Prospective AMC investors may want to take advantage of the possible price bump that will likely accompany the upcoming quiet period expiration.