AMC Stock: Is it a "Buy" Before Q2 Earnings?

• The ongoing drama surrounding the conversion of preferred shares (APE shares) has caused AMC's share price to fluctuate; however, positive Q2 results and high short interest may help to raise AMC's price in the near future.

• Due to promising theatrical releases and an improvement in box office performance following the pandemic, analysts anticipate that AMC will report significant increases in both EPS and revenue growth for Q2 as well as for the upcoming quarters.

Expectations for Q2

AMC Entertainment (NYSE: AMC), the theater chain, is scheduled to release its second quarter Fiscal 2023 results on August 8 after the market closes. Analysts anticipate that AMC will report an adjusted loss of $0.04 per share on revenues of $1.29 billion. These estimates indicate a promising improvement compared to the performance of the same quarter in the previous year.

AMC is expected to outperform analysts' expectations based on an impressive slate of film releases in the coming quarter. The Super Mario Bros., Guardians of the Galaxy Vol. 3, and Spider-Man: Across the Spider-Verse were among the top-grossing films during this time period. Furthermore, recent successful releases such as Barbie and Oppenheimer have contributed to an increase in AMC theater attendance. The full impact of "Barbenheimer" will, however, be seen in AMC's third-quarter results.

Despite ongoing efforts, the theater chain continues to struggle with liquidity issues. A Delaware court last month rejected CEO Adam Aron's recent attempt to raise funds by converting AMC Preferred Equity (APE units) into common stock. The proposed transaction, which included a 10-for-1 reverse stock split, was rejected. The company has consistently emphasized the importance of raising additional capital; otherwise, there is a risk of bankruptcy, similar to Cineworld's recent bankruptcy.

AMC anticipates its domestic box office to reach $9 billion or more by 2023 and that its EBITDA will be in the hundreds of millions of dollars - a significant increase from the $46 million profit reported for 2022.

AMC's Q1 Earnings Review

AMC Entertainment reported strong financial results for the previous quarter that mostly outperformed Wall Street's expectations. Following the release of their Q1 results on May 5, AMC's shares increased in pre-market trading.

The substantial increase in revenue was largely attributed to the higher number of movies released during the quarter. In Q1 2023, Hollywood launched 35 films that achieved domestic grosses exceeding $5 million, marking a notable 34% year-over-year rise. This performance also marked the best first-quarter box-office results since the onset of the COVID pandemic in March 2020.

The movie theater chain reported an adjusted loss per share of 15 cents, which was approximately 3 cents below the consensus. However, revenues exceeded expectations, reaching $954.4 million, surpassing analysts' estimates by $16.20 million and showing a significant 21.5% year-over-year improvement.

In the first quarter, AMC's management highlighted a notable 30% year-over-year increase in revenue from food and beverage. Moreover, the company's EBITDA saw a substantial improvement, rising by $69 million to reach $7 million. This was in contrast to the previous year's Q1, where AMC had reported an EBITDA loss of $62 million.

AMC: Should You Buy or Sell?

Analysts are still hesitant about the future direction of AMC stock despite the year's extensive slate of blockbuster films. Analysts think that the theater chain may not be able to be saved despite popular films and nearly full theaters. AMC urgently needs additional funding in order to survive.

AMC's stock price has experienced significant fluctuations, mainly because of the ongoing drama concerning the conversion of AMC's preferred shares (APEs) and the suspension of the reverse stock split due to court litigation.

There are strong indications that AMC will likely report a quarter that surpasses analysts' expectations. The box office results suggest a broader recovery in the industry, and AMC's ability to manage cash burn is expected to continue, aided by achievable annual EBITDA guidance. Additionally, AMC has consistently outperformed the market consensus quarter after quarter.

In the latest update on the APE conversion saga, the court's unexpected decision was to reject AMC's initial settlement proposal for proceeding with the conversion of APEs. This came as a major setback for AMC's management, as it hindered their plans to raise a substantial amount of cash through share conversion. However, AMC has responded by revising the settlement and resubmitting it to the court, and there is now an expectation that the revised proposal will be approved.

Considering the current situation, I view AMC as an exciting trading opportunity leading up to its earnings announcement. The ongoing litigation process might continue to have a significant impact on the stock. However, if AMC manages to deliver Q2 results that significantly surpass expectations, the combination of increased buying pressure, high short interest, and steep borrowing costs could potentially cause a remarkable surge in AMC's share price.

Also Read: AMC FTDs have now totaled $60,000,000 in July

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