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Short AMC Entertainment To Hedge A Second Wave Of COVID-19

IP Banking Research profile picture
IP Banking Research


  • AMC share price has run up since the spectre of imminent bankruptcy faded.
  • Mr. Market is now all-in on the reopening narrative.
  • Second-wave risks still remain, and AMC is most vulnerable to such a scenario.
  • Whilst I am still bullish on the stock, I see the possible outcomes as binary.
  • Shorting AMC could be a good portfolio hedge if you fear the second wave.

The Thesis

AMC Entertainment (NYSE:AMC) is one of the most vulnerable stocks to a second wave of COVID-19. I don't expect a complete societal lockdown to reoccur, but invariably, cinemas will one of the first venues to close.

Given the company's high debt load and precarious liquidity position, in such an event, bankruptcy is the most likely outcome. I don't believe a white knight will appear either unless it is to sift through the rubble.

Having said that, the bull case is intact if the great economy reopening succeeds.

In my view, shorting AMC is an effective hedge to your portfolio if you fear the second wave downside.

Binary Options

In my previous article on AMC, I highlighted four binary options and set out my view on the probabilities of each occurring. My conclusion was that the most likely outcome was an acquisition, followed by a surgical restructure of AMC's capital structure. I suggested that the probability of an acquisition increases as it becomes more and more apparent that bankruptcy is unlikely. Otherwise, it would make sense for potential suitors to wait it out and pick through the rubble.

AMC managed to raise $500 million of liquidity in a private note recently - buying the company some breathing time to remain a going concern until it is able to generate some revenue as it begins to reopen cinemas in June and July.

If AMC is able to successfully execute on the reopening, I expect it to be bought out, simply because the capital structure badly and urgently needs a makeover. It is now saddled with expensive debt, and adjusted EBITDA may not be sufficient to deleverage quickly enough to make a difference. So, there is a clear arbitrage opportunity there for an acquirer with deep pockets to purchase AMC at below replacement cost, especially if other synergies

This article was written by

IP Banking Research profile picture
Independent banking research focuses on financials, deep value, special situations, and financial arbitrage. Agnostic and apolitical approach for scouring the earth for durable and uncorrelated cashflows that work well in both inflationary and deflationary settings.See my tipranks profile below:https://www.tipranks.com/bloggers/ip-banking-researchTo benefit from independent insights and quality analysis from a banking insider - subscribe as a "real-time" follower above.

Analyst’s Disclosure: I am/we are long AMC. 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.

Long AMC, but considering taking part profits and establishing a short position as a broader portfolio hedge.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

Chris Lau profile picture
After erasing yesterday's loss and heading to $8.00, this stock already rewarded those who took my buy call at $2.00. https://bit.ly/37fNftn

Accumulate AMC as theatre capacity increases after two weeks and more after that.
Goomba69 profile picture
Given HTZ I think you're on to something. If AMC goes belly up they can just issue more shares ... and there might even be buyers.
Flipper2058 profile picture
Management’s move to ask junior bonds to ASSURE a 50% haircut from par on their bond swap is a sleaze ball move. Especially with the stock at $550m in market cap.
They need to sell shares to shore up their balance as X did today. Asking creditors to pay shows the ethics of this management, poor.
Attendance was declining before the pandemic and I don't see any reason why people will rush back to theaters with coronavirus risks. A poll on HLN said that 70% would rather stay home and it was split between the movie goes and undecideds. Can't see why a buyer would take on such maybe debt. It's only going to get worse for AMC in my opinion.
egorromanyuk profile picture
When you title you're article "short AMC..." You should mention how much ch it costs to borrow shares for shorting
Yeah you really can only buy puts
Goomba69 profile picture
I'm with the author on taking profits.
Also have been looking at stocks to hedge an overall long portfolio: AMC, AAL, CCL, BA, GE, oil and gas.
DayTradeLongTerm profile picture
empty mall parking lots where many movie theaters are will turn into drive ins. you heard it here first
They should issue some more shares. Raise a few hundred million.
America is over the virus pandemic. Second wave or not. Unless the risk of death skyrockets, people are just going to take their chances. AMC is still a good short regardless considering people have learned how to love without it for months now and streaming has ramped up.
Gundament profile picture
Yeah no thanks.. Lol
Long $AMC
Flu season, around the corner!
Jonnhy99 profile picture
AMC should try and raise more cash in this geeen market. The second wave is starting to build before it rockets up come fall. Look at numbers for data coming in from memorial day weekend for Texas, Florida, Arizona and Cali. Florida and Texas are masking corvid19 deaths with pneumonia deaths. Florida and Texas last year and before were averaging 150-500 deaths from pneumonia now its 4000-5000, pneumonia deaths going up in may and june come on now.
Where is the detail of this?
Jonnhy99 profile picture
CDC site for deaths
ChartYeti profile picture
According to cdc Texas had 3,516 pneumonia death in 2018... But new cases are rising in Texas, but deaths are steady, also consider vastly more people are being tested because they are going back to work.
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