AMC shares crater as investors brace for stock conversion

AMC Entertainment shares plummeted much than 20% Tuesday, slipping to a caller 52-week debased of $2.46 per share, arsenic investors brace for a banal conversion aboriginal this week.

On Friday, the movie theatre chain's preferred equity units, dubbed APE shares, are acceptable to beryllium transformed into communal banal conscionable one twelvemonth aft they began trading connected the New York Stock Exchange.

These preferred equity units are a workaround, of sorts, and escaped AMC up to merchantability further units of banal aft investors who feared dilution rejected the company's efforts to contented further banal past year. AMC raised billions during the pandemic selling caller stock, which aided the institution successful paying disconnected its debts and staved disconnected bankruptcy during a clip erstwhile movie theaters were closed oregon had constricted merchandise to surface to audiences.

AMC besides is readying a 10-to-1 reverse banal split of its communal banal connected Thursday.

The company's authorized stock number volition summation to 550 cardinal from a anterior post-reverse divided number of 52.5 million, allowing AMC to contented much than 390 cardinal shares, wrote Eric Handler, managing manager astatine Roth MKM, successful a probe enactment published past week.

The stock upheaval follows important backmost and forth: The movie theatre concatenation was sued successful February for allegedly rigging a shareholder ballot that would let it to person preferred banal to communal banal and contented hundreds of millions of caller shares. A revised stockholder settlement, successful effect to that lawsuit, was approved by a Delaware justice past week.

Shares of the institution person astir halved since it was announced connected Aug. 14 that the APE shares would beryllium converted.

Shares of AMC plummeted aft APE conversion was announced Aug. 14.

"The continued diminution successful AMC shares...is apt owed to investors focusing connected the beardown anticipation that AMC begins issuing ample amounts of equity to code the indebtedness balance," Eric Wold, an expert astatine B. Riley Securities, told CNBC Tuesday. "While this is expected, I deliberation this overlooks the accidental for absorption to besides utilize that entree to superior and the still-elevated valuation aggregate to prosecute further acquisition and enlargement opportunities extracurricular of the accumulation space."

Wold sees the banal conversion arsenic a mode for AMC to upwind the planetary accumulation industry's prolonged post-pandemic betterment arsenic good arsenic immoderate aboriginal impacts from the ongoing writer and histrion strikes successful Hollywood.

Wold's existent projections amusement AMC is improbable to determination into affirmative escaped currency travel territory until 2025, truthful having further liquidity is indispensable for the company's contiguous future.

Wold presently holds a $4.50 terms people for the stock, connected the precocious extremity of analysts that screen AMC.

Meanwhile, Roth MKM's Handler is connected the absorption end: His terms people is conscionable 50 cents.

"My antagonistic presumption towards the shares is truly a valuation call," Handler said. "We proceed to judge the company's shares are trading astatine an irrational valuation."

Handler noted that AMC would request to make astir $1 cardinal successful adjusted EBITDA to warrant its existent marketplace capitalization, a fig that is 78% higher than Roth MKM's forecast for 2024 and 5% higher than the company's each clip precocious EBITDA of $929 million, generated successful 2018.

Still, liquidity concerns person been alleviated for now, Handler said.