Wedbush updated its model on AMC Entertainment (NYSE:AMC) Tuesday following the trading of AMC Preferred Equity (BOIN:APE).
Analyst Alicia Reese keeps her Underperform rating on AMC and lowered the price target to $2 from $4 given the stock-split effect as APE started trading.
But Reese also said that Cineworld's (OTCPK:CNNWF) (OTCPK:CNWGY) problems are more company specific and AMC has "plenty of cash" to weather a two-month slump in content production and is "well-positioned for a strong Q4:22 and 2023."
"AMC has gained market share vs. its pre-pandemic average on an improved footprint, and as some competitors have delayed theater upgrades," Reese wrote in a note. "AMC continues to right-size the ship by repaying and restructuring debt, acquiring more quality screens while removing underperforming screens, and making inroads into secondary revenue sources, including alternative content and retail popcorn sales."
"AMC preferred Equity in effect created a two-for-one stock split, with half listed under AMC and half under APE," she added. "At the end of APE’s first day of trading, the combined shares lost $800 million in enterprise value from Friday’s closing price of $18.01, with AMC ending the day at $10.46 and APE at $6.00."
"While it makes little sense for APE to trade below AMC, we think that it reflects concerns over impending dilution. AMC is pre-authorized to issue up to 4.5 billion additional preferred shares of APE to raise cash."
"We expect AMC to wait for APE shares to stabilize with AMC, then issue a portion of its authorized APE shares for cash to pay down the majority of its outstanding debt," Reese said. "We note that at the August 22 closing price of $6, AMC would have to issue over 900 million shares of APE to repay its entire debt balance."