- AMC is set to benefit from the total reopening of America as the vaccination rate surges.
- This will mean the upcoming movie slate is less likely to be delayed.
- Higher theatre traffic in the months ahead and a lurch of capital to post-pandemic plays should support AMC's stock price.
A large number of bears have come out of tepid hibernation to declare the death of AMC (NYSE:NYSE:AMC) following its rapid short squeeze-led ascent. While this bearish show of force holds some water when describing the unsustainability of such an aggressive move upwards, their thesis begins to crumble when narratives are peddled questioning how effective the three FDA-approved vaccines are. Further attempts to depict the future theatregoers as a relic of a bygone era are also misguided.
The reopening of America in the months ahead presents somewhat of a structural shift for the equity capital markets and will likely see some capital flee highly speculative stocks to companies that have been battered by the pandemic. Hence, while AMC's stock price has heavily gyrated over the last few weeks on the back of retail-led speculative trading, the long-term trend and the wider macro environment is up.
The Reopening Of America
The pace of vaccinations now stands at 1.74 million people per day, after recovering from a dip to 1.3 million due to snowstorms that caused production and supply delays across much of the US.
Our World In Data, University of Oxford (Source)
Total vaccine doses administered has risen to 72.81 million and should at their current pace reach 100 million doses in two weeks. The pace of daily vaccinations is set to rise in the coming weeks to continue its previous upward momentum as vaccine supply constraints get unwinded.
March is on track to experience a vaccination surge following the full FDA approval of the game-changing one-shot vaccine from Johnson & Johnson (NYSE:JNJ). A combination of the Johnson and Johnson vaccine and larger supplies from both Pfizer-BioNTech (NYSE:PFE) and Moderna (NASDAQ:MRNA) will likely see more people vaccinated in March than since the start of the US vaccination effort. This will have the dual effect of rapidly improving the sentiment of investors toward brick-and-mortar post-pandemic plays. It would also improve the confidence of people currently unable or afraid to go out due to having to isolate themselves. This at-risk portion of the population has been or should be able to get vaccinated in the coming weeks.
All these factors will lead to the grand reopening of America, the point in the future where stay-at-home orders are no longer in place so movies are not being pushed back or theatres subject to forced closures or restricted capacity. This point in time would serve as a positive upwards catalyst for the stock.
AMC's recent rally helped the company retire at least $600 million of debt when a bondholder converted $600 million of 2.95% bonds owed by the company to equity. And while dilution is generally a bad deal for current holders of the company's common shares, it is being done at a level rapidly inflated by speculative retail traders. This has meant the company being able to raise more money with comparatively less dilution.
Essentially, dilution has been AMC's only pathway to surviving the pandemic. The recent rally in its shares has meant that it has been able to do this at artificially inflated levels. The rally has continued in recent days after abating for a few weeks, hence if AMC presses ahead with its previous plans to raise even more capital by selling more shares then it can capitalise on the manic speculation on its shares by short-termist investors. The extra capital would be better aligned for longer-term value creation.
New Share Offerings, Dilution, And Bankruptcy: Life Or Death
The bearish narrative around AMC's share offerings has been somewhat disingenuous. While the company's outstanding share count has rapidly risen on the back of a pandemic that has shuttered many theatres in cities and towns across the United States, this was the most optimal choice to preserve shareholder value. The alternative choice would have seen AMC's creditors take total control of the company just before the great reopening of America. This would be akin to stumbling for many miles to get to the end of the tunnel but giving up just before you cross.
AMC now faces a country finally opening up after human ingenuity created vaccines to end the most significant pandemic in over a century. How will this new world look? Likely much like the old one once the dust settles and people once again look at the world with optimism and hope rather than pessimism and fear. For far too long our realities have been dominated by death and suffering as we remained shut in and out of sight.
We now stand just before the end of the tunnel, at the cusp of not having to hear 'unprecedented' again, and at recovering from the economic damage caused by necessary rolling stay-at-home orders. AMC chose life when faced with death and that should be celebrated as people embrace the theatregoing experience again.
This article was written by
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