AMC dips 5% as ‘APE’ preferreds steal focus from box office (NYSE:AMC)

New York during the COVID-19 emergency.

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AMC Entertainment (NYSE:AMC) is 6.3% lower Friday, as investors react to gains that included news that could disrupt the existing capital structure, while CEO Adam Aron gains some flexibility with a slump to the “Ape Army” of the company’s retail investors.

Second-quarter results were broadly as expected — much better than 2021, not quite as good as 2019 — so reactions have focused on the creation of a preferred stock dividend to be issued to common shareholders.

AMC Preferred Equity trades on the NYSE under the ticker symbol APE and is paid one unit per share at the end of August 19th. The preferred stock has a par value of $0.01 but may be convertible into AMC common stock in the future.

The neutral view of APE is a weapon for the company to tap into more capital when needed. Stocks are trading higher – AMC was yesterday increased by 81% since May 24 – gave management the opportunity, said Eric Wold, an analyst at B. Riley.

The new class provides an “attractive opportunity for the company to raise additional capital to both reduce balance sheet debt and pursue additional growth opportunities,” he said. It has a neutral rating and a price target of $11.

Benchmark analyst Michael Hickey agrees that the new issue should be used “opportunistically”, be it for deleveraging or otherwise.

MKM Partners bearded Eric Handler says the move provides a “security blanket” in the event of another major business disruption, though he doesn’t think the company faces the risk of running out of cash. Yes, it’s “dry powder” for additional debt purchases or M&A.

However, this can lead to “high costs” for the capital structure. “The key question from here, however, is will future equity offerings prove value-added or dilutive?” Handler has a Sell rating and a price target of $1 on AMC stocks.

As for actual results, analysts stood by their belief that the movie business, while certainly not COVID-proof, is reasonably recession- and inflation-proof. Rampant inflation hasn’t stopped movie customers from “opening their wallets wider,” Wold noted, and Hickey said domestic box offices can deliver growth in a recessionary environment.

The company answered questions from just one analyst — Wold — on its investor call and chose to answer other questions from its investor base. Dive into more detail there with Seeking Alpha’s AMC call transcript. AMC dips 5% as ‘APE’ preferreds steal focus from box office (NYSE:AMC)

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