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Bear of the Day: AMC Entertainment (AMC)

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AMC Entertainment (AMC - Free Report) is a Zacks Rank #5 (Strong Sell) that operates movie theaters and screens across the United States and internationally. As of March, of this year, the company owned 1000 theater and 11,000 screens. Recent rumors of bankruptcy have been unfounded, but investors must be aware the COVID-19 might eventually wipe out the equity.

More About AMC

The company was founded in 1920 and is headquartered in Leawood, Kansas.  AMC is valued at $300 million and has Zacks Style Scores of “B” in Value, but “D” in Growth. Recently the company was reported to file for chapter 11 bankruptcy, but the CEO denied that they were seeking bankruptcy.

Q4 Earnings

In early August, the company reported earnings, posting a 36% surprised to the downside. Admissions revenue came in at $0.9M vs the $895.5M last year. Obviously, the lockdowns had a lot to do with the loss of revenue and the company is reeling from the inability to attract movie goers in a pandemic.

While the company might get a pass due to COVID-19, the trend lower had already started. The company missed on EPS six of the last eight quarters. The stock reflected this poor performance, going from $35 in early 2017, to $8 to start $2020.

Estimates

The estimates are falling across the board. Over the last 90 days, next quarter has seen a drop from -$2.84 to -$4.11. For next year, we have seen a fall from -$2.60 to -$4.00 over the same time frame.

Fighting to survive.

The company is trying to survive and do the best they can to wait out the virus. Movie goers likely have a pent-up demand, so whenever a vaccine comes AMC could bounce back. However, it’s a risk most investors don’t want to take.

As venues slowly reopen, they anticipate that existing cash resources would be largely depleted by the end of 2020 or early 2021. If this happens, they will require additional sources of liquidity or perhaps bankruptcy.

The Technicals

There isn’t much to analyze on the chart as it has gone straight down since early September. Perhaps the company can get a relief bounce on some news, but the $5 level will have a lot of supply. The 200-day MA resides at that level and would be a spot to exit any longs.

In Summary

AMC is what investors call dead money. There simply is no reason to put money to work here, while there are plenty of other companies that are thriving in this environment. Those interested in a turnaround story should wait for the virus to subside and price action to improve.

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