Can AMC overthrow Moviepass and regain its former glory?

Investment idea by DTI

Exchange: NYSE
IndustryMovie Production, Theaters

Entry strategy

Price: 16
Stop-loss:  13.3
Take profit: first target 22, then 28
Investment horizon: until the end of 2018

Company details

AMC Entertainment Holdings ($AMC) is the world's biggest movie theaters chain, with more than 11 thousand screens. The company is most present in the US, where it has the lead in 22 out of 25 large metropolitan areas. AMC is controlled by the Chinese conglomerate Wanda Group.

In 2018 AMC opened a movie theater in Saudi Arabia — its first in 37 years.

The company's market capitalization is $2 billion. Its headquarters are located in Leawood, Kansas.

Financial summary of AMC performance is presented in Table 1:

AMC financial overviewTable 1. Financial overview of AMC Entertainment Holdings ($AMC). Source MarketWatch

Technical analysis (trading plan)

AMC technical analysisPic. 1. Trading strategy for AMC Entertainment Holdings, Inc ($AMC). 1 week time frame. Source: TradingView

Fundamental analysis

AMC had a bad 2017  and ended the year with a loss. That was reflected in its stock price, which fell from $35 to $11. Challenged by a declining business, the company's management announced a restructing plan, with a sell-off of $400 million non-core assets. Money raised from the sale were supposed to finance a $100 million share buyback, theaters renovation and expansion in the new markets.

The sell-off went even smoother than was expected, with $495 million being raised in less than a year (ahead of the 24 months deadline).

Meanwhile, the company grew its core business. In Q1 2018 AMC achieved record revenue across all categories (admission, food and beverage, other). That was helped by the acquisition of Nordic Cinema Group Holding AB, a competitor with a large presence in Northern Europe and Baltic countries. When it comes to sales growth, AMC is confidently leading the market (see table 2).

AMC sales growth
Table 2. AMC Entertainment Holdings ($AMC) revenue growth. Source: Reuters

Profit before taxation was $22.4 million in the first quarter compared to a loss of $0.8 million in the same quarter last year. Given the superior performance of the new "Avengers" movies and a big box office of "Jurassic World 2", including in IMAX, AMC is expected to have further gains in Q2.

In terms of valuation, AMC is trading significantly lower than the industry multipliers (see table 3).

AMC valuation ratios
Table 3. AMC Entertainment Holdings ($AMC) valuation ratios. Source: Reuters

It is also worth mentioning that the company pays its investors more dividends than others in the industry. Throughout the last five years, dividend yield of AMC was almost four times the industrial average (see table 4).

AMC dividend yield
Table 4. AMC Entertainment Holdings ($AMC) dividend yield. Source: Reuters

Apart from big movie launches, AMC has a new product which could help its stock regain growth. It is called AMC Stubs A-List and it is a subscription service that allows to see up to three movies a week for  $19.95 a month.

AMC subscription costs more than a similar product from MoviePass (up to 1 movie per day for $9.95 a month). However, AMC has several advantages. First, it allows subscribers to use IMAX, Dolby, and other premium screenings. Second, it is possible to see more than one movie in a day. Finally, unlike AMC, MoviePass has no option to book the ticket in advance.

Given AMC status as the leading chain in the US, their subscription service may successfully compete with MoviePass. AMC Stubs A-List was launched on the 20th of June.