Box-office hits and rising market share are reviving interest in the movie-theater chain. Here's what investors need to watch for next.
It's the stuff of classic movie trailers - a main character struggling to stay afloat in a tough world, a lifeboat that can disappear at any moment, a ticking clock - and it's coming to a theater near you in 2025.
AMC Entertainment has been making headlines again thanks to the return of meme-stock fever, which has helped shares gain 80% since the end of April. That gain, though, doesn't capture the precarious position the company is in. Sales have been falling this year, the result of a slate of films that has failed to excite moviegoers following the actors' strike. AMC also is struggling under a debt load that is too big -- and coming due too soon -- for a company its size. It all has left many observers wondering if a restructuring could be in the company's future.
The path forward is fraught, but there is a path. Despite its troubles, AMC has been gaining market share, while the return of the meme-stock trade has given it the ability to sell stock and raise funds without taking on more debt.
Recent signs of life at the box office, including Inside Out 2's billion-dollar take and the strong start for A Quiet Place: Day One, suggest that hope for a stronger batch of films in 2025 isn't unfounded. Combined, they could help AMC become a company that analysts and investors take seriously once again.
CEO Adam Aron remains optimistic. "Personally, I think it's inconceivable that AMC would have to restructure like Regal Cinemas did and file for Chapter 11," he told The Hollywood Reporter in April.
AMC's debt is enormous. The company holds a total of $8.6 billion in long-term debt as of December 2023, up from $5.2 billion in 2018, according to FactSet. That number overstates the company's debt load because it includes operating leases, say Jory Eisenberg and Hunter Martin, analysts at research firm CreditSights. They advise focusing on the current net debt -- totaling $3.46 billion, excluding those leases -- which should be regarded more as operating expenses.
Yet, even at that lower number, AMC's debt load is a major headwind to future success. Revenue is still sharply below its pre-Covid peak, and earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $387 million over the past 12 months is only half of what it was in 2019. That gives the company a "leverage ratio" -- found by dividing debt by Ebitda -- of a bit under nine times, far above what's healthy. Competitor Cinemark boasts a ratio of 2.8 times. Getting its leverage ratio down is essential for AMC to continue operating as a going concern.
"The company would need to get its net leverage below four times to have a decent chance at accomplishing a regular-way refinancing," according to the CreditSights analysts.
The meme stock rally has helped. The return of Keith Gill, the trader better known as Roaring Kitty, whipped retail investors into a frenzy. The company used that to sell what was left of a $250 million stock-sale plan on May 14, and followed up with a debt-for-equity swap. Its bonds also responded, with the debt due in 2026 jumping to nearly 88 cents on the dollar on June 28 from just over 70 cents before the meme trade revived in May, a sign that investors are less worried about AMC's ability to pay off those bonds. Still, the company's 2029 debt is trading just below 68 cents on the dollar.
More stock sales could be on the way, but that depends on the fickleness of retail investors. "Obviously, the higher a stock price is, the more money that it can earn from issuing shares," says Wedbush Securities analyst Alicia Reese, who rates AMC Neutral with a price target of $3.50.
The high debt also means more cash is being used to make interest payments, rather than going to acquisitions or theater upgrades. AMC reported an adjusted net loss of 78 cents a share for the quarter ended March 31, reflecting high costs for rent, utility bills, and workers -- costs that are shouldered regardless of how many people show up for a movie, says B. Riley analyst Eric Wold, who rates the shares Neutral, with an $8 price target. But AMC also has to pay $400 million in interest a year to service its debt, compounding the problem. "That definitely does drain the business," Wold says.
A strong 2025 is essential for AMC. Next year features a long slate of releases including Superman, Toy Story 5, and Avatar 3, among others. Strong ticket sales for Inside Out 2, which racked up $155 million in its first weekend , may be proof people will go to the theater for the right films. CreditSights estimates that AMC adds $30 million in Ebitda for every $100 million change at the domestic box office. If the domestic box office reaches $10 billion, or 88% of where it was in 2019, the company could earn $800 million in Ebitda, putting its leverage ratio at about 4.4 times.
That leaves a narrow path to success for AMC. The company, to its credit, has been gaining market share despite its woes; it controlled about 23% of the U.S. market at the end of 2023. (Cinemark, the No. 2 player, has a 14% market share.) It also has the most IMAX screens in North America, says Wedbush's Reese. And if AMC can get its debt to more manageable levels, it could scoop up smaller players.
That might seem too optimistic. But just like in the movies, everyone loves a happy ending.
