AMC Entertainment’s AMC Preferred Equity Units, or APEs, rose 1.2% on their trading debut on Monday, while the theater chain’s stock fell 38.5%, but analysts were unfazed.
Despite concerns expressed by some users on social media about AMC’s stock plunge, analysts say that it was not unexpected, noting the APEs’ similarity with a 2-for-1 stock split. The volatility will settle, they added.
The APE equity had surged after market open, quickly rising more than 30%, before pulling back.
AMC Entertainment Holdings Inc.’s
special dividend is the latest stage in a journey that took the movie theater chain from beleaguered pandemic victim to meme-stock phenomenon and also marks the latest move in a fight over stock issuances. APE is a nod to the investors who turned AMC into a meme stock, who often refer to themselves as “apes” or “ape nation.”
Some individuals were critical of trading halts in the two securities as they swung about in early trading.
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But trading halts are a normal part of stock trading and are implemented by stock exchanges as a way to rein in volatility. The S&P 500 index
is down 1.7% on Monday.
Others took issue with the media’s coverage of the special dividend.
AMC shares, which have fallen 59.3% this year, have declined 4.3% over the last three months. The S&P 500 index has declined 12.8% in 2022 and has gained 4.6% over the last three months.
It has generally been difficult deciphering exactly what drives trading in AMC shares recently, according to B. Riley analyst Eric Wold. “I suspect that will be the case with the APE shares going forward,” he added. “However, given that the special dividend is similar to a 2-for-1 stock split, it makes sense to see AMC shares pressured with this issuance.”
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Wold expects the two classes of equities to trade relatively similarly and at similar levels over time. “They both have the same economic value,” he said. “However, there is likely to be some short-term impact from index funds readjusting for this issuance as the APEs are not included in the indices, but the common shares are included.”
Wedbush analyst Alicia Reese thinks that AMC’s trading level is actually better than expected. “In the absence of any other noise, AMC shares should be down around 50% (to $9) with APE shares rising to $9, given Friday’s AMC closing of $18.01,” she told MarketWatch. “AMC shares trading higher than $9 is a positive, but APE shares trading below AMC shares makes little sense.”
“We think they settle together around $9 each by the end of trading today, maybe up somewhat from there,” she added.
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Last week AMC shares were weighed down by a report in The Wall Street Journal that U.K. cinema chain Cineworld Group PLC
the parent of Regal Entertainment Group, was preparing to file for bankruptcy. On Monday Cineworld confirmed that it is considering a possible voluntary Chapter 11 filing in the United States, according to a Barron’s report.
The idea that Cineworld’s bankruptcy is detrimental for AMC is way off the mark, according to Wedbush’s Reese. “We keep seeing articles that Cineworld’s bankruptcy is a negative for AMC and the industry, but I fail to see how that’s the case,” she told MarketWatch. “Cineworld ran out of cash, while AMC has plenty.”
“Older Regal theaters are a tough choice next to a nice Cinemark or AMC theater, so I think they’ve struggled to drive the same level of attendance post-pandemic,” she added. “In any case, we don’t think Cineworld’s issues indicate the same for AMC or Cinemark, as the latter companies are better positioned with more cash available.”
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In a statement released last week, AMC CEO Adam Aron noted that the company ended its most recent fiscal quarter with more than $1 billion of liquidity, citing “significant amounts” of cash raised in 2020 and 2021. The APE special dividend should also make AMC a stronger company, he added.
While AMC remains a cause célèbre for a vocal community of individual investors, the company and its fellow meme stock phenomenon GameStop Corp. were recently added to New Constructs’ list of “zombie” companies facing severe cash burn.
AMC’s financial health has also been cited as a cause for concern by RapidRatings, a company that assesses the finances of public and private companies.
Of eight analysts surveyed by FactSet, three have a hold rating and five have a sell rating for AMC.