AMC reverses to 8% gain as 'APE' preferreds steal focus from box office

Aug. 05, 2022 12:16 PM ETAMC Entertainment Holdings, Inc. (AMC)By: Jason Aycock, SA News Editor44 Comments

New York during the COVID-19 emergency.

Massimo Giachetti/iStock Editorial via Getty Images

AMC Entertainment (NYSE:AMC) had fallen as much as 11.6% Friday, but reversed course in the late morning and had risen 8.2% at midday, as investors reacted to earnings that included news that could upset its existing capital structure, as CEO Adam Aron gains some flexibility with a sop to the company's "Ape Army" of retail investors.

Second-quarter results were largely as expected - much better than 2021, not quite as good as 2019 - so reactions centered on the creation of a preferred-equity dividend to be issued to common stockholders.

The AMC Preferred Equity will trade on the NYSE under the ticker symbol APE, and one unit per share of stock will be paid at the close of Aug. 19. The preferred share has a par value of $0.01, but could be convertible in the future to an AMC common share.

The Neutral view on APE is as a weapon for the company to tap more capital as needed. Shares trading higher - as of yesterday, AMC was up 81% since May 24 - gave management the opportunity, B. Riley analyst Eric Wold said.

The new class offers an "attractive way for the company to raise additional capital to both reduce balance sheet leverage and pursue additional growth opportunities," he said. He has a Neutral rating and $11 price target.

Benchmark analyst Michael Hickey agrees the new issue should be "opportunistically" used, whether to reduce debt or otherwise.

Bearish Eric Handler at MKM Partners says the action offers a "security blanket" in the case of another big business disruption, though he doesn't think the company's at risk for running out of cash. Yes, it's "dry powder" for additional debt purchases or M&A.

That may come at a "big cost" to capital structure, however. "The key question though from here is will future share issuances prove accretive or dilutive?" Handler has a Sell rating and a $1 price target on AMC stock.

As for the actual results, analysts maintained their belief that while the movie business certainly isn't COVID-proof, it's somewhat recession- and inflation-proof. Rampant inflation didn't keep movie customers from "opening their wallets wider," Wold noted, and Hickey said domestic box office can deliver growth in a recession environment.

The company took questions on its investor call from just one analyst - Wold - electing to answer other questions from its investor base. Dig into more there with Seeking Alpha's transcript of the AMC call.

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