AMC Entertainment: Stock Surge Providing Exit Liquidity

AMC Entertainment: Stock Surge Providing Exit Liquidity


Movie theater chain AMC Entertainment (NYSE:) shares were hit hard during the pandemic plunge falling as low as $1.95 per share. As the benchmark {{166|S&P 500 index}} grinds to new all-time highs, shares of the theater chain have rallied over 300% off its low as the Company expects to have 70% of its theaters open in early September 2020.

However, the pandemic damage has caused studio production delays and the migration to streaming digital distribution models that could be a death blow to move theaters moving forward. Prudent investors may consider taking the bounce opportunity to unwind positions into the bounce while it lasts.

Q2 FY 2020 Earnings Release

On Aug. 6, 2020, AMC released its second-quarter fiscal 2020 for the quarter ending June 2020. The Company reported a loss of (-$5.44) per share falling short of consensus analyst estimates for a loss of (-$4.27) per share, a (-$1.17) per share miss. Revenues plunged (-98.7%) year-over-year (YoY) to $19 million beating consensus estimates of $11.9 million.

The Company announced that it had resumed operations of more than 130 theaters in Europe and the Middle East. Unfortunately, the coronavirus shutdown also impacted production schedules resulting to extended delays to new motion picture releases. The long-awaited “New Mutants” motion picture achieved a mere $7 million in total box office during its opening weekend.

Secondary Stock Offering

On Sept. 2, 2020, AMC files for a 30 million share secondary offering to raise cash to pay down debt and operations. On Aug. 31, 2020, AMC announced an initial filing of 5 million shares to sold for shareholders. These guys may have the right idea.

Meanwhile, the 30 million share offering buys the Company more time to try to outlast COVID-19 until a vaccine approval. The Company is rolling out press releases trying to paint a positive recovery narrative including the resumption of 70% of its theaters opening over Labor Day weekend including its California theatres.

However, the theater business has been dying even before the pandemic so there’s definitely a lower ceiling as to the “recovery”. More importantly, there is an even larger threat looming.

Hybrid Movie Distribution Model Threat

Movie theaters are initial distribution channels for studios. While attempts to rollout theatrical releases same-day on cable OnDemand have been done on obscure and lower budget films, Walt Disney (NYSE:) has taken it to the next level.

Disney launches their highly anticipated $200 million budget picture “Mulan” on Sept. 4, 2020, through its Disney+ premier channel in addition to select theaters. This is the true litmus test to see if the new hybrid model of distribution for major motion pictures will pave the future.

Credit must be given Disney for building out the infrastructure for its distribution network Disney+, which has bolstered its membership to north of 60 million subscribers inside of a year’s time and 4 years ahead of schedule. Disney can also tap the 30 million Hulu subscribers bringing a total addressable market (TAM) to over 90 million subscribers for its premier theater content.

While this may initially make movie theaters this decade’s version of “Blockbuster Video”, theaters chains like AMC have reached out and taken steps to lock in a piece of the action.

The Universal and AMC Deal

AMC made a deal with Universal Pictures requiring first distribution rights for its movies for 16-days before releasing to streaming channels. AMC would also receive an undisclosed percentage of the streaming and pay-per-view sales.

While this may seem like a big deal, it’s really not. Remember that a movie theater makes most of its profits on concessions and merchandise. With no foot traffic, movie theaters bleed cash, think about the huge square footage leased every month. Where else can you pay $12 for a soda and popcorn? This deal is a band-aid at best kicking the can down the road.

The other speculation is the potential for an acquisition by a movie studio or content behemoth like Amazon (NASDAQ:). The acquisition possibility has made its round earlier during the pandemic, but nothing has come to fruition yet.

The reality is that AMC shares were already in a downward spiral before the pandemic, which accelerated the speed of demise. Prudent investors should use the dead cat bounce to unwind positions while they can.

AMC Stock Trajectory Levels

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for AMC stock. The monthly rifle chart completed its channel tightening with a bullish stochastic mini pup to the 15-period moving average (MA). The rising 5-period MA support overlaps with the $5.29 Fibonacci (fib) level. The weekly rifle chart triggered a market structure low (MSL) buy above the $4.01 fib.

The weekly stochastic has a mini pup which hit its target upside at the $7.30 upper Bollinger Band (BBs). Further upside momentum may trigger to provide investors exits into key inflection price levels at $7.35 fib, $8.81 fib, $9.59 fib and $10.68 fib and PRZ3. These aforementioned price levels are resistances with no assurance they will actually hit, but if they do then consider them a “gift” exit opportunity. Liquidity overrides price as the 5 million share selling shareholders will likely attest to.

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