“It has been a pretty difficult time ,” Beynon said Thursday on Yahoo Finance Live. “The AMC story is really momentum and technically driven, and a lot of the leaders of this following have highlighted this is a really good time from a technical standpoint. A lot of people are calling for a breakout. Some believe that the stock can get to $100. Some believe it could get to $100,000.” A day later, Beynon is standing by his call because, well, the fundamentals warrant a more bearish stance.
The analyst slashed his rating to Underperform from Neutral on AMC. Beynon didn’t pull any punches on what fair value should be for AMC: $6 a share, or more than 80% from current levels.
Beynon isn’t on board with either of those price targets.
The downgrade reflects two important considerations by Beynon, an admitted movie buff. First, box office receipts will continue to be lackluster due to the ongoing COVID-19 pandemic. And two, AMC’s fundamentals stink — and will remain stinky amid those sluggish box office receipts.
“Looking forward, fundamentals are nowhere near where shares are trading given the company carries deferred rent of $420 million (2Q21) in addition to its annual rent expense of $1 billion; normalized maintenance capex is ~$140 million, and annual interest is ~$420 million. Overall, we do not see the company generating positive free cash flow until 2023 and believe there are other ways to own the theatre space,” Beynon wrote in the note to clients.
AMC shares fell another 1% on Thursday as investors — however faithful they are to AMC CEO Adam Aron — continued to digest Beynon’s downgrade.
Beynon says a fresh wave of selling in AMC could soon be approaching, too.
“We do think after Labor Day when some of these investors are back at work and maybe they are looking at other things — maybe they are gambling on sports — maybe the bloom comes off the rose a little bit. But yes, certainly there has been a lot of negative feedback. A lot of people just go back and say the fundamentals don’t matter. We think they still do, and we think at some point the technical factors that everyone loves about AMC become more attractive on other names. When that happens, that’s when we think a lot of the AMC investors could move into another name they find more attractive, and then the fundamentals will matter,” explained Beynon.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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