The AMC Stock is Set for a Q4 Gain, but Wedbush Expects a Tumultuous Year in 2024

AMC Entertainment Holdings Inc. is anticipated to experience an upswing in shares as it unveils its fourth-quarter results, as per projections from analyst firm Wedbush. Despite this positive outlook, the movie-theater chain could face a "tumultuous" 2024, according to Wedbush analyst Alicia Reese.

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In a note released on Friday, Reese highlighted AMC's successful expansion of market share in 2023 and its potential to maintain or further increase its 22% market share. This positive trajectory is attributed to the extensive network of premium large-format screens and the distribution of concert films. Furthermore, Reese pointed out the opportunity for revenue growth in the European circuit, emphasizing potential theater upgrades that could enhance per-screen averages.

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The success of concert films such as "Taylor Swift: The Eras Tour" and "Renaissance: A Film by Beyoncé" played a crucial role in AMC's share gains. Reese suggested that AMC likely gained market share in the fourth quarter of 2023, distributing these films throughout its circuit and global circuits of competitors.

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Analysts surveyed by FactSet expect AMC to report a fourth-quarter loss of 57 cents per share and revenue of $1.058 billion. However, despite the positive projections, Reese cautioned that 2024 might be a challenging year for AMC, with potential "pockets of strength offset by volume holes."

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The analyst estimated a 7% year-over-year decline in the North American box office to $8.3 billion in 2024, following a 21% year-over-year rise in 2023. Reese attributed this downturn to the effects of the SAG-AFTRA strike, causing delays in the release of several titles.

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Looking ahead, Wedbush anticipates that AMC might face a first-quarter EBITDA loss due to a soft slate in the initial two months. However, this is expected to be partially offset by a strong March, with the latest "Dune" movie likely performing well on IMAX Corp. screens, especially since AMC boasts the largest domestic footprint of IMAX screens.

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Despite the positive outlook, Reese highlighted concerns about AMC's debt load and the absence of a dividend. AMC's net debt stands at $4.095 billion, according to Wedbush, which maintains a neutral rating and a $6 price target for the movie theater chain. Reese emphasized that AMC's positive sentiment is tempered by the company's heavy debt load and its lack of dividend, even though the stock is now trading more in line with its historical multiple.

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To address its debt burden, AMC completed an at-the-market equity offering in December, raising approximately $350 million. This move aimed to reduce the company's liabilities, which exceeded $5 billion in 2022. However, Wedbush noted that AMC is likely to continue issuing shares to service its debt and prepare for upcoming debt repayments over the next three years.

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As of now, AMC shares have declined by 33.9% in the last three months, in contrast to the S&P 500 index's gain of 12%. Although the stock has seen some recovery from its record closing low in February, it remains a far cry from the peak of the meme-stock frenzy in June 2021 when AMC shares reached an all-time high of $339.05.

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CEO Adam Aron acknowledged the current state of affairs and promised to provide insights during the upcoming fourth-quarter earnings call scheduled for February 28. In a tweet earlier this month, he mentioned that the actors' and writers' strikes in 2023 had a detrimental impact on the early 2024 box office.

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In comparison, AMC's rival, Cinemark Holdings Inc., recently reported a wider-than-expected fourth-quarter loss, although its revenue surpassed analysts' expectations. The broader industry landscape suggests challenges and uncertainties that AMC will need to navigate in the coming year.

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