There are several notable advantages to being the biggest theatrical exhibitor in North America and the world, a status reserved for AMC Entertainment (NYSE:AMC).
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During the most recent quarter, its film rent costs amounted to 51% of its admissions revenues, a much better figure than those of its major rivals (although such calculations are not always directly comparable). It is also the U.S.’s biggest operator of IMAX screens. And on account of its first-rate theaters, with plenty of recliners and a big presence in urban areas, its ticket pricing has also tended to be quite aggressive.
These factors, says Barrington analyst James Goss, have contributed to a “number of favorable operating metrics recently, further enhanced by consumer preference for premium experience.”
The company is also testing new initiatives such as the Sightlines program that offers moviegoers various seating options at different price points. Having spent years in marketing positions at different companies where pricing structures would vary according to desirability, CEO Adam Aron has a lot of experience managing such endeavors. Additionally, in collaboration with Walmart, the company is trying out retail sales of microwave and ready-to-eat popcorn. Assuming this product is met with positive consumer reception,” says Goss, “we expect retail availability will be expanded.”
However, these achievements and initiatives are not enough for Goss to get fully behind the company, mainly due to one major factor.
“Significant uncertainty remains for AMC due to its high degree of financial leverage,” the analyst said. “Top executives are expected to hold certain minimum levels of shareholdings to ensure that the corporate management team has motivation that aligns with its shareholder base. Management has been successful in raising equity that has improved AMC’s potential to move past the pandemic, but risk levels remain high.”
To this end, Goss reiterated a Market Perform (i.e., Neutral) rating without providing a fixed price target. (To watch Goss’s track record, click here)
As for the broader analyst community, other pros are also cautious. 2 Holds and 2 Sells add up to a Moderate Sell consensus rating. At $2.33, the average price target brings the downside potential to ~57%. (See AMC stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
