America’s most prominent movie theater chain reported preliminary Q1 2024 results on April 26 after the markets closed. AMC Entertainment (NYSE:AMC) stock is down about 10% in the days since.
B. Riley analyst Eric Wold was impressed with the first-quarter results. His company has a Neutral rating on AMC stock with a highly generous target price.
“‘We believe [the preliminary results] demonstrate the exhibitor’s continued industry box office outperformance in the post-pandemic recovery era,’ wrote B. Riley Securities’ Eric Wold. He maintained a Neutral rating and stock-price target of $8,” Barron’s reported on April 30.
Wedbush analyst Alicia Reese believes that the early earnings report is good news and should translate into a solid second half of the year.
Those buying on hopes that AMC stock pulls itself out of penny-stock hell understand that even if it rises above $5 in April, the relief will only be temporary.
Here’s why.
CEO Looks Forward to Second Half of 2024
As expected, Adam Aron was enthusiastic in his comments about the first quarter, suggesting that despite the headwinds faced in Q1 because of the 2023 Hollywood writers and actors strikes, it exceeded expectations for the quarter.
“AMC exceeded consensus estimates for Revenue, Adjusted EBITDA, Net Income, and Diluted EPS. While we anticipate that the second quarter box office will continue to be affected by the 2023 Hollywood strikes, we are ebullient about the upcoming film slate, and we expect to see an increasingly strong box office as the year progresses,” Aron stated in AMC’s news release.
The results Aron was so exuberant about included an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $31.6 million, up from $9.6 million a year earlier.
Revenue for the quarter will be flat year-over-year at $951 million. It will finish the quarter with $2.37 a share in cash.
I wouldn’t be excited about a threefold increase in losses, but when you’re drowning, you must do anything to be optimistic about your situation. Its cash position is almost equal to its current share price.
Unfortunately, once you take out total debt ($9.14 billion), which includes operating lease liabilities, its $624 million in cash is irrelevant.
What’s the Upside to Second Half
So, let’s forget about Q2 and focus on the year’s second half. Aron believes it will be a box-office success.
What qualifies as boffo box office?
In 2018, AMC generated its best revenue ever, with $5.47 billion and $265 million in operating income. Its U.S. food and beverage revenue per patron was $5.17, with an average $9.55 average ticket price.
In 2023, its U.S. food and beverage revenue per patron was $7.95, with a $11.90 average ticket price. The 2023 numbers are higher in both instances because of higher prices, not more food or tickets sold.
In 2018, it had a U.S. attendance of 255.74 million. If you halve it to 127.87 million and multiply by $11.90, the average ticket price in 2023, we get $1.52 billion in admissions revenue for Q3 and Q4 2024 combined.
The Q3 and Q4 2023 numbers were $587.5 million and $455.1 million, for a combined $1.04 billion.
If all this continues, the second-half admissions revenue growth will be about 46% over 2023.
So, given the reduction in annual admissions revenue, the best it will ever be able to do is $3.35 billion, which is about what it did in 2018.
However, in 2018, its annual interest expense was $342 million. In 2023, it was $411 million, 20% higher than in 2022, which means profits will never amount to much unless it severely reduces its operating expenses.
The Bottom Line on AMC Entertainment Stock
There is no question that AMC stock is trending higher in 2024. Investors are reading Adam Aron’s positive comments from Q1, believing the world is about to get much brighter. It’s not.
AMC will not reach double digits in 2024 without serious changes in its business model.
Do not buy AMC stock.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
