AMC - Tech Or Restaurant Play? Take Your Pick And Enjoy The 'Star Wars' Pop

| About: AMC Entertainment (AMC)

Summary

Wang Jalian bought a majority stake in AMC back in 2012.

His aim is to build an integrated studio-film complex from Hollywood's Golden Age.

IMAX and restaurants.

Movie theaters used to be a real estate business. Then they were something like the airplane business. Now they're a lot more like the tech business. Maybe a restaurant business.

Theaters profit as they drive technology change, installing systems like Imax (NYSE:IMAX) that let them charge prices of $15-20 to watch a single picture. It's an arms race with the experience of home theaters, where big screen TVs and expensive sound bars can now replicate the standard wide-screen experience, and movies come free with a Netflix (NASDAQ:NFLX) subscription.

If you don't like the tech story for an operator like AMC Entertainment (NYSE:AMC), maybe you'll like the food story. AMC has been adding restaurants to some of its locations, meaning the ticket price can go up to $100 per couple. This is not your father's shoe box, in other words, and its profitability is only partly driven by what's showing.

AMC is majority-owned by Chinese property developer Wang Jalian, who took his stake in 2012 but it's still publicly traded. It had a rather wild ride during 2015, rising to over $35/share in February before falling to its present level of about $21.

Wang's story is very much a movie script.. With AMC Wang is bidding to become the Chinese equivalent of William Fox, the movie mogul of the 1920s. He could end up like Fox himself, whose fortune was destroyed by the 1929 stock market crash and whose name now rests on Rupert Murdoch's (NASDAQ:FOX) studio.

Wang is China's biggest real estate mogul, and is in the process of building a giant movie studio in Qingdao, a port city midway between the financial center of Shanghai and the political center of Beijing. The idea is to have an integrated production-and-distribution network, like those from Hollywood's Golden Age of the 1930s and 1940s, which was broken up by antitrust regulators in the 1950s. That's not a threat today as that integration has been replaced by a system where TV and cable operators like Comcast (NASDAQ:CMCSA), Viacom (NASDAQ:VIAB) and Disney (NYSE:DIS) own studios, film libraries, and global distribution networks men like Louis B. Mayer could only dream of.

If you buy AMC now you also get in on a possible "Star Wars" pop with earnings due out in the middle of February. Analysts are expecting AMC to deliver 41 cents/share in earnings on revenues of $804 million, a huge improvement on the 20 cents/share and $712 million of a year earlier. That would mean $1.10 in net income on your $21 investment.

RBC liked the odds well enough to raise its rating on the stock recently, to an outperform, with a target price of $34/share. Other estimates for the quarter are all over the map, with some predicting earnings of 33 cents per share and others going as high as 60 cents. Most are expecting the P/E ratio to revert to the market mean of 16, based on even-better 2016 numbers.

So you've got a fun story, you've got an interesting speculation, and if the optimistic analysts are right you have a quick pop in the share price, which on a per-share basis is currently near the price of a movie ticket.

Disclosure: I am/we are long CMCSA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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