Under normal circumstances, the idea of buying into a movie theater chain like AMC Entertainment (NYSE:AMC) would seem like a reasonable idea. Why not buy a portion of an operation that customers routinely travel to and enjoy? These, of course, are not normal circumstances, and though times have never been quite so tough for AMC, there's still a reasonable case for picking up a few shares of the company's stock to buy into potential turnarounds.
Potential Turnaround Increases
Give AMC credit here; it's doing a lot to think outside the box and give itself new opportunities for growth even in a challenging environment. Perhaps the biggest, and best, bit of news for the company in recent days is that the New York theaters—one of the longest-lasting holdouts—are poised to restart.
The move will have limited, but welcome, impact. Starting October 23, this Friday, the New York state theaters will be allowed to reopen, of course laden with terms and conditions, but reopen nonetheless. New York City theaters, however, will remain closed, tempering the impact of the move. Some have noted here that, should the state's theaters be reopened with little incident, it will be virtually impossible to justify the continued closure of the city's theaters as well, a move which may also have some worthwhile implications for still-shuttered Broadway and much of the city's tourism base. The move means that AMC theaters will now be operational in 44 out of the 45 states in which it currently has a presence; at last report, California remains the only holdout.
Additionally, AMC has delivered a novel approach in other states that may give it a hand up; the chain is renting out its empty theater space to private parties of 20 or fewer for $99 a night. The purchase price includes access to one of 17 available titles, including “Jurassic Park”, “The Nightmare Before Christmas,” and recent attempted blockbuster “Tenet,” though that comes with a significant upcharge.
The Analysts, Meanwhile, Remain Skeptical
It's obvious that AMC is doing what it can to hold out in the midst of an environment that's actually even worse than the Great Depression; at least back then, people were eager to see a movie to briefly forget the grinding horror many of their lives had become. The analysts are less than convinced that these measures will work, as our latest research finds.
Right now, the company is rated at a “hold”, as it has been for the last six months. However, the proportion of ratings has remained the same for the last three months at least: four “sell” ratings, eight “hold” ratings, and one “buy” rating. The only noticeable changes in consensus in the last six months were the loss of two “buy” ratings from 180 days ago, and the addition of one “hold” rating.
The price target, meanwhile, has also declined on average, dropping from $8.61 six months ago to $5.82 today, but with a small recovery seen between the two points. In a point for AMC's favor, however, the “sell” ratings are all older; no one has put a “sell” rating on the company since Credit Suisse declared it an “underperform” back in June.
A Gamble, But An Educated Gamble
With some reports suggesting that AMC has about six months of cash available before outright bankruptcy emerges, suggesting a purchase here might seem like trying to catch a falling knife. However, there are circumstances that can give the company a bit of a lift. First, consider that operations are coming back online; yes, California is still out of the picture for the foreseeable, and New York is only partially back, but New York City denizens who want to see a movie in an AMC can still leave town.
Consider also that one of AMC's biggest rivals, Regal / Cinemark (LON:CINE), is shuttered completely for the time being, which means AMC has a real opportunity to win market share. Given that Cinemark is currently carrying a “buy” recommendation, it's not as if analysts expect the whole movie theater market to be destroyed, which means still-open AMC may be able to win new customers from under Regal's nose.
The lack of content is still going to hit movie theaters hard; most of the major blockbuster releases have been pushed back out beyond November with a few exceptions. Was anyone really looking forward to “The War With Grandpa”? Yet we can see a turnaround beginning, and if AMC can hold out a while longer with nothing serious happening in the meantime, it may well come back to prominence and take investors along for the ride. Throw in a share price of $3.53 and the price of that ride is likely a lot less than many expected.
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