The Bears Are Wrong: AMC Stands To Benefit From The Reopening Of America
Summary
- 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.
Bloomberg (Source)
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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Comments (64)
www.sec.gov/...Not Good!
This text I’am posting is not mine but is jindungo of my opinion about the subject:“DON'T LISTEN TO THE MEDIAI've been investing for years; 25 to be exact. I bought Amazon in 1998 -- and sold it a few months later. I survived the dot com bubble; survived the Great Recession, and have somehow survived my own greed with regards to triple-levered etf's. Don't get me started.Until last month, I was a sceptic of the new-era of investing -- the Tesla, crypto, etc. type of investing. The reason was, I was programmed from my youth to pay attention to 'old' indicators of value. P&E Ratio was always the first and foremost indicator I would look at. So, naturally, when I learned about Bitcoin in 2017 like so many others of my generation, it was foreign. Didn't make sense. I wasn't alone. You'll recall that CNBC and WSJ, along with most of Wall Street, deemed crypto a joke and Ponzi scheme. Well, look at them now -- now only is Wall Street, but multiple soverign nations, beginning to speak of a future of crypto essentially replacing the gold standard.Then there's Tesla. Call me a convert. NOT to the actual valuation of the company -- which, from an old-school perspective, is CRAZY. But I've become a convert to the ideals behind WHY Tesla has gotten to big, and why it hasn't collapsed. I now realize that the key is the individuals buying it are programmed entirely different from how the Boomers and Gen X (myself) were taught. And it's hard to teach an old dog new tricks.Fast forward to 2021; suddenly, Wall Street is keen on crypto, and EVERYONE loves Tesla -- because crypto and Tesla have made a LOT of guys on the Street a TON of money.And that leads me AMC (I own 68,000 shares), GME (own no shares, but considering) and all the other meme stocks. I've come to appreciate the power of this new era in which we live, in which a group of individuals can say 'I love the stonk' and create value out of something that the 'old school' technicals say isn't worth squat. But it doesn't matter -- the people who own it LIKE it, they BUY it, and they DON'T sell it. These three acts combined -- with the very important ingredient of very smart and opportunistic individuals sharing information (like DFV) -- turn a $250 million dollar company in GME into an $8 billion dollar company in a matter of one-week, with the insane potential to double in value overnight. Value lays in the eye of the beholder; the stock is worth what someone is willing to pay. The more and more individuals who say 'I like the stonk' who grab it and hold, create an ATM out of this new medium in which they've essentially created.Bitcoin, Tesla, and GME -- from a purely technical analysis -- are insanely overvalued. Perhaps AMC will become equally so. But that's thinking with my head. I've come to appreciate that these investments have gotten to their heights, and will continue higher, because the majority of their owners are in with their hearts. THEY/WE LIKE THE STONK.HF's are in their positions from their heads -- math, greed, etc. The 'meme' stock owners are in it with their hearts. If you've ever seen Braveheart, or any other 'classic' film about battle, you'll know how the army's made up of peasants who are fighting for their lives and land tend to have an advantage over their opponents who are essentially mercinaries. Those fighting with heart tend to win. That's why I believe in AMC. The grassroots interest in AMC is HUGE. Most are new to the game; a breed of investor groomed from an era in which you trade because you actually LIKE the stock, instead of looking at P&E ratios and analyst ratings. This CAN and WILL be huge.We just need to HOLD THE LINE! HOLD!”
The premise seems to be that the world won’t change that much after the pandemic.
However even slight changes in consumer behavior will materially affect AMC because of their high debt load
