Macquarie analyst Chad Benson also downgrades Reading International, cuts box-office estimates for the next two years
Shares of AMC Entertainment Holdings Inc. pulled back Wednesday, after Macquarie Research analyst Chad Benson turned bearish on the movie theater operator, citing concerns over the slow recovery of the moviegoing industry and elevated relative valuation.
AMC stock $(AMC)$ fell 2% in morning trading, after running up 16.9% amid a three-day win streak to close Tuesday at an eight-week high.
Benson cut his rating on AMC to underperform, after being at neutral for a little over a year. He kept his stock price target at $6, which is about 87% below current levels.
"There are a multitude of reasons why domestic box-office $(DBO)$ performance hasn't recovered (product, shrinking windows, COVID restrictions, etc.), but the bottom line is that recent weekly [revenues] are still down 30%+ versus [2019] comparable period, while most out-of-home entertainment options have recovered much faster," Benson wrote in a note to clients.
He said the biggest concern about the domestic box office is the non-blockbuster, $50 million-$100 million box-office movies, which continue to underperform, "leading to more studio questions around these releases."
Benson also cut his overall domestic box-office estimates for the second half of 2021, and for all of 2022 and 2023.
While he lowered his view on the overall movie theater industry, Benson said AMC remains the riskiest of the companies he covers, given rent obligations, higher debt and abnormally high valuation. He said AMC's stock continues to be "heavily influenced" by retail traders and WallStreetBets, leading to a valuation of roughly eight times where he generally sees the business being valued.
He also downgraded Reading International Inc. $(RDI.UK)$ to neutral from outperform, but reiterated outperform ratings for Cinemark Holdings Inc. $(CNK)$ and for IMAX Corp. $(IMAX)$, with IMAX being his "top pick" of the bunch.
Benson said AMC's fundamentals "are nowhere near where shares are trading." And with the company unlikely to generate positive free cash flow until 2023, he believes "there are other ways to own the theater space."
Year to date, shares of AMC have skyrocketed 2,078.3%, Reading stock has edged up 1.2%, Cinemark shares have tacked on 0.3% and IMAX shares have declined 12.8%. Over the same time, the S&P 500 index has gained 20.7%.
