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Stocks  | March 25, 2021

AMC Entertainment (NYSE:AMC) reported earnings and liquidity statements for 2020 on March 10. But management used most of the conference call to talk about the movie theater’s outlook going forward. Based on two value models for AMC stock, I estimate AMC is worth 7% to 37% more than current prices.

One thing the conference call made clear is that management thinks it will have just enough cash and cash flow to last to the end of the year, with “more than $1 billion of cash on hand.”

They also made it clear that the total number of shares outstanding is now 450.2 million. Therefore, at today’s intraday prices of a little more than $11 per share, the company has a market capitalization of just under $5 billion.

Moreover, the company is burning about $140 million per month, although they expect that to dramatically decrease by Q4. They believe the fourth quarter will be slightly free cash flow (FCF) positive.

Therefore, assuming six months of $140 million in cash burn and 3 months of $100 million in cash burn until Q4, AMC will burn up $1.04 billion. Since this equals the total amount of liquidity it has now, I suspect the company will have to raise further capital.

Management seemed to imply this on the conference call, although it may not come via an equity raise. I suspect it will be either a convertible preferred or convertible debt capital raise. Either way, expect another $250 million to $400 million in a capital raise.

Two Methods To Value AMC Entertainment – Price-Sales Model

The first is a price-to-sales model, similar to what I used in my article on AMC stock earlier in March. The table at the right shows my new assessment of the price-to-sales model. It projects that 2021 will have sales at an average of 45.8% of 2019.

This time around, I believe that management’s forecast will be accurate and I used 100% of their estimates. Part of the reason for this is what I heard during the conference call. Here is what management said:

“By our count, around 40 major movie titles that have already been completed were delayed from a 2020 release and will be released theatrically, hitting our big screens starting in May and beyond.“

Management used two different metaphors to describe this unique situation. The first was that of a large number of planes circling La Guardia airport waiting to land. The second was that of a new car dealer:

“AMC is in the new car business and that since March of 2020, we’ve had very few new cars shipped to our showrooms. Finally, now those new cars are on their way to us and sell them, we will, in massive quantities.“

The table above shows that I value AMC stock between $8.35 and $9.81 per share for 2021 and 2022 sales forecasts. This market cap model is based on 86% of the 2022 sales. I based this on the fact that in the past four years to 2018, according to Morningstar, the average price-to-sales ratio was 65%.

The bottom line is that AMC stock is worth $9.08 on average, or approximately 18% less than today.

FCF Model

The table at the right shows how I valued AMC stock using a free cash flow (FCF) model. I estimated the FCF based on a 10% cash flow from operations (CFFO) assumption. For example, during 2018, AMC made 10.6% in CFFO. I then deducted $100 million in capex in 2021, based on statements made by management, and raised that to $150 million in 2022.

Then, using a 3% FCF yield, I estimated AMC’s market value by dividing the forecast FCF by 3% each year. After dividing by the number of shares, with a 10% inflation in share count by 2022, the target prices are $11.14 for 2021 and $24.47 for 2022. The average target price is $17.81 between the two years, or 61% above today’s price.

A Price Target For AMC Stock

The table at the right shows that I averaged these two models to derive a final target value for AMC stock.

For example, the average of the two models is $9.74 for 2021 and $17.14 for 2022. The latter is 54% above today’s price.

The average target is $13.44 between the two, or 21% potential upside. Therefore we can say that the upside for AMC stock, in terms of fair value, somewhere between $13.44 (+21%) and $17.14 (+54%).

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