AMC Entertainment Has Stopped Burning Cash, Which Should Help AMC Stock

AMC (NYSE:AMC) reported stellar earnings on March 1 for the quarter and year ending Dec. 31. As a result, AMC stock looks like it could be of good value. The main reason is that the company started generating positive free cash flow and is no longer burning through its cash pile.

Image of the entrance of an AMC Entertainment (AMC) branded theater.

Source: Helen89 / Shutterstock.com

That will be a great relief for shareholders who have seen AMC stock fall from a recent peak price of $51.69 on Sept. 13. As of March 9, it was down to $15.71 per share, or almost 70% off its peak price.

In fact, AMC is actually up off its trough price of $14.72 as of Jan. 27. That means it’s up 6.7% off of its low. The stock could rise even more once the market realizes that AMC Entertainment will keep making positive free cash flow.

Where Things Stand at AMC Entertainment

AMC’s earnings for Q4 were its strongest quarterly results in two full years. Although it had a net loss of $134 million, this included a raft of non-cash charges and adjustments. As a result, its adjusted net loss was just $57.2 million.

But more importantly, AMC reported that its net cash provided by operating activities for the fourth quarter was positive $46.5 million. After deducting capital expenditures of $38.5 million, its actual free cash flow (FCF) was positive $8 million for the quarter.

That compares with a cash outflow or negative FCF last year of $375.5 million. In other words, the company has turned around quite dramatically.

And investors should expect that this progress will continue through this year and next, short of a recession. For example, AMC just announced that it had its third-highest attended weekend in two years with The Batman movie that was recently released. That will likely boost its Q1 revenue and earnings a good deal, although Q4 had the other two-highest weekends.

Where This Leaves AMC Stock Going Forward

Analysts now estimate that AMC will produce $4.61 billion in revenue this year, up from $2.53 billion in 2021. The 2023 estimate is for $5.61 billion. As a result, we can assume that its free cash flow (FCF) margin will rise substantially by the end of the year.

Simply put, people are going back to the movies and buying food there. That is the most profitable element of AMC’s entertainment experience for movie fans.

As a result, let’s assume that AMC will make at least a 10% FCF margin on average for the year. That also implies that the Q4 FCF margin will be substantially higher than — probably more like 15% in Q4.

First of all, that implies that FCF will hit $461 million by the end of 2022. And by 2023, we can assume that the FCF margin will likely be at least 15%. That implies that FCF will reach $842 million in 2023.

So assuming the market gives the stock a 5% FCF yield by the end of 2022, its market value could rise to $9.22 billion. This is seen by dividing $461 million in FCF by 5%, or alternatively, multiplying it by 20x (since it is the same thing).

This $9.22 billion forecast market capitalization is 14.3% higher than its present $8.06 billion market cap. That implies that AMC stock is worth $17.96 or about $18 by the end of 2022.

Moreover, assuming AMC generates a 15% FCF margin by the end of 2023, it could bring the target price to $16.84 billion. That is 109% over today’s price.

In other words, AMC stock could rise anywhere from 14% to 109% over the next two years assuming its FCF starts to rise dramatically as its sales more than double. That makes it a pretty good bargain for most value investors.

On the date of publication, Mark Hake did not hold (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.

Mark Hake writes about personal finance on mrhake.medium.com, Newsbreak.com and Beehiiv.com.


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