AMC Entertainment’s Shares Still Overpriced Despite Efforts to Reduce Debt, According to Wedbush

AMC Entertainment (NYSE: AMC) has seen its stock rise by 7.3% as it tries to reduce its debt, but Wedbush has reiterated its Underperform rating, stating that the company’s shares are still overpriced. In a note to investors, analysts Alicia Reese and Michael Pachter said that while AMC has the cash to continue operating in a normalizing environment in the coming year, it is still dealing with its large debt balance.

The company has recently proposed a debt-for-equity swap involving its AMC Preferred Equity units (APE), which have risen by 8.6% today. However, Wedbush believes that AMC’s 2023 financials will be similar to its financials in 2019, with revenue tracking similarly but EBITDA margin lagging due to macro pressures. As a result, the firm expects AMC’s share price to be lower in 2023 than it was in 2019.

Despite this, Wedbush believes that AMC has a group of retail investors who will likely “prop up shares for a while longer,” and has recommended a pair trade involving the conversion of APE units to AMC shares. The firm has set a price target of $2 for AMC’s shares, implying a 51% downside, or $40 if the APE conversion and reverse split are taken into account.

AMC’s recent declines have led CEO Adam Aron to propose freezing pay increases for himself and other executives, and the exchange plan resulted in S&P downgrading the company’s long-term credit and calling the move “tantamount to default.”

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