Here’s Why Investors Should Retain AMC Entertainment Stock Now

AMC Entertainment Holdings, Inc. AMC is likely to benefit from a recovering box office, operational efficiency and innovative content. Its focus on strengthening the balance sheet bodes well. However, a challenging North American box office poses concern.

Factors Driving AMC Stock

Rebounding Box Office: The second half of 2024 signals a significant box office revival, with June marking a key turning point. AMC set an all-time monthly adjusted EBITDA record for June, driven by the box office success of Disney’s Inside Out 2. The box office gained from June domestic revenues surpassing the combined figures of April and May.

AMC capitalized on this momentum, and the outlook for the remainder of 2024 looks brighter with highly anticipated releases like Joker: Folie à Deux and Gladiator II. The upcoming movie slate for 2025 and 2026 includes major blockbusters such as Star Wars, Avengers and Avatar, setting the stage for sustained growth in box office revenues.

Operational Efficiency and Innovation: AMC has improved its operational efficiency, with notable cost-cutting measures and revenue-boosting innovations. One standout example is the company’s venture into selling movie-related merchandise. AMC expects to generate around $50 million in merchandise sales in 2024, with attractive profit margins. The company focuses on both innovation and cost efficiency to drive growth in the upcoming periods.

Innovative Content and Expansion of Premium Experiences: AMC’s innovation in alternative content, such as concert films from Taylor Swift and Beyonce, has proven to be lucrative, and the company expects more similar ventures in the near future. Additionally, AMC continues to expand its premium large-format screens, which are increasingly popular among consumers. The company is also making strides in other areas, including its loyalty program AMC Stubs and the movie subscription service AMC Stubs A-List. These marketing initiatives are expected to enhance customer engagement and drive additional revenues.

Strategic Balance Sheet Improvements: AMC has made substantial progress in strengthening its balance sheet, a critical factor for its long-term recovery. The company raised $250 million through an equity capital raise and eliminated $173.9 million in second-lien debt, recording an $85.3 million profit from the debt extinguishment. Furthermore, AMC extended the maturity dates of $1.86 billion in term loans and $580 million in second-lien debt, pushing due dates from 2026 to 2029 and 2030, respectively. These moves represent a significant improvement in AMC’s financial position, reducing near-term liquidity risks and enhancing the company’s ability to manage its recovery.

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Concerns for AMC Stock

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Shares of AMC Entertainment have lost 23% year to date against the industry’s growth of 5.9%. The downside can be attributed to the lackluster recovery of the North American box office.

The North American box office faced significant challenges in the first half of the year, with revenues down 19% year over year and 36% below 2019 levels. While the second quarter of 2024 saw 19% growth in top line from the first quarter, it still lagged the prior-year quarter’s level by 27%. The company remains cautious about both the domestic and international box office outlook, expecting a prolonged recovery that could increase cash burn and necessitate further financing.

Conclusion

Despite the challenges faced by AMC Entertainment, particularly with the slow recovery of the North American box office, the company’s strategic initiatives offer reasons for optimism. The anticipated resurgence in box office revenues, driven by highly anticipated films in 2024 and beyond, positions AMC for potential long-term growth.

Operational efficiencies, innovative content and improvements in its balance sheet further support its recovery efforts. While caution is warranted due to near-term uncertainties, the long-term outlook suggests that retaining AMC stock could prove beneficial as the company continues to strengthen its financial standing and capitalize on market opportunities.

Zacks Rank and Stocks to Consider

AMC Entertainment currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Consumer Discretionary sector are Norwegian Cruise Line Holdings Ltd. NCLH, DoubleDown Interactive Co., Ltd. DDI and Monarch Casino & Resort, Inc. MCRI, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Norwegian Cruise Line has a trailing four-quarter earnings surprise of 5.7%, on average. The stock has rallied 17.7% in the past year. The Zacks Consensus Estimate for NCLH’s 2024 sales and earnings per share (EPS) calls for growth of 9.8% and 125.7%, respectively, from the year-ago levels.

DoubleDown Interactive has a trailing four-quarter earnings surprise of 26%, on average. The stock has surged 49.7% in the past year. The Zacks Consensus Estimate for DDI’s 2024 sales and EPS indicates an increase of 12.6% and 15.8%, respectively, from the year-ago levels.

Monarch Casino & Resort has a trailing four-quarter negative earnings surprise of 3.5%, on average. The stock has increased 12.7% in the past year. The Zacks Consensus Estimate for MCRI’s 2024 sales and EPS indicates an increase of 2.3% and 10%, respectively, from the year-ago levels.

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