AMC, boosted by 'Deadpool & Wolverine', set for market-share gains as box office rebounds, says Wedbush

By James Rogers

Movie-theater chain and original meme stock AMC reported second-quarter results after market close Friday

AMC Entertainment Holdings Inc., which reported second-quarter results after market close Friday, is set for market-share gains amid an improving box office, according to Wedbush.

The movie-theater chain and original meme stock reaped the benefits of Disney's record-breaking "Inside Out 2" in its second-quarter results, which AMC (AMC) had previewed on July 24.

"Inside Out 2," from Walt Disney Co. (DIS)-owned Pixar, hit $1 billion at the box office just 19 days after its June release, setting a new record for an animated movie. The film is also the highest-grossing movie of 2024, ahead of another Disney blockbuster, "Deadpool & Wolverine," according to data from Comscore.

Related: 'Inside Out 2' success is AMC's saving grace in second quarter

While the lingering impact of the 2023 Hollywood writers and actors strikes weighed on the early part of AMC's second quarter, it ended with "incredible strength" thanks to "Inside Out 2," Chief Executive Adam Aron said in a statement. During a conference call, Aron also noted that "Deadpool & Wolverine," which opened on July 26, "has set all sorts of revenue and attendance records for AMC."

"AMC can further expand market share from 22.5% in 2023 in a rebounding market with its vast network of premium large-format screens and concert movie distribution, justifying its premium valuation," Wedbush analyst Alicia Reese wrote in a note released Monday. "AMC can also drive revenue growth in Europe with theater upgrades."

"However, it is unlikely to do so until it works through balance sheet right-sizing," Reese added. "The company's heavy debt load and lack of dividend overshadow these positive factors, but AMC is focused on alleviating its debt."

Related: AMC and IMAX shares climb, boosted by huge 'Deadpool & Wolverine' opening weekend

"Since the beginning of 2022, AMC has reduced its debt by $1 billion but still has $4 billion remaining net debt," the analyst said. "On July 22, AMC extended the debt maturities on a significant portion of the debt due in 2026."

Aron highlighted the company's recently announced debt-restructuring deal during the conference call. AMC's debt-extension transactions were "a literal game changer" for the company, he said.

But Wedbush expects AMC's 2024 Ebitda to still fall below interest expense. "Ebitda should rise in 2025 and beyond, and AMC will likely raise more capital in the coming months via exchangeable notes and direct share issuances," Reese wrote. "AMC must cover its interest payments and conserve cash while it posts losses."

See: AMC's stock climbs on debt-restructuring deal

"We expect AMC's shares to remain volatile as its shareholders dislike its frequent share issuances," the analyst added.

AMC shares were down 8.9% in premarket trades Monday, putting them on pace for their biggest daily decline since June 7, when they fell 15.2%. The stock is down 19.3% in 2024, compared with the S&P 500 index's gain of 12.1%.

Wedbush's current estimates for the 2024 box office are relatively flat year-over-year, with a strong rebound beginning in the second half of the third quarter, which is now underway with "Deadpool & Wolverine," according to Reese. Wedbush's 2025 estimates are conservative on the industry level and AMC's market share, the analyst added, noting that the analyst firm's model does not yet include alternative content, such as concert movies in 2024 or 2025. Wedbush has a neutral rating for AMC.

Also: AMC debt restructuring sparks more buying in the movie-theater chain's junk bonds

In a statement released July 29, AMC said Marvel's latest blockbuster, "Deadpool & Wolverine," set new opening-weekend records for an R-rated film at its U.S. locations, registering AMC's highest-ever attendance and highest-ever admissions revenue for an R-rated film.

"Despite a slow start to the quarter due to industry strikes, strong box office performances in June, particularly with Disney's Inside Out 2, contributed to a record-setting end to the quarter," wrote Benchmark analyst Mike Hickey, in a note released Monday. Benchmark has a hold rating for AMC.

Of seven analysts surveyed by FactSet, four have a hold rating and three have a sell rating for AMC.

-James Rogers

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08-05-24 0831ET

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