Small Cap AMC Entertainment Holdings: Blockbuster Short?

Small capcinema stock AMC Entertainment Holdings (NYSE: AMC) is thetwelfth most shorted stock on the NYSE with short interest of 40.60% according AMC Entertainment Holdings is the largest movie exhibition company in the U.S., in Europe and throughout the world with approximately 1,000 theatres and 11,000 screens across the globe. The Company says it has propelled innovation in the exhibition industry by:

Deploying more plush power-recliner seats; Delivering enhanced food and beverage choices; Generating greater guest engagement through its loyalty program, web site and smart phone apps; Offering premium large format experiences; Playing a wide variety of content including the latest Hollywood releases and independent programming.

AMC Entertainment Holdings operates among the most productive theatres in the United States’ top markets, having the #1 or #2 market share positions in 22 of the 25 largest metropolitan areas of the United States, including the top three markets (NY, LA, Chicago). Through its Odeon subsidiary, the Company operates in 14 European countries and is the # 1 theatre chain in UK & Ireland, Italy, Spain, Sweden, Finland and the Baltic States. The Company is also majority-owned by China-based Dalian Wanda Group Co. Ltd.

A technical chart for AMC Entertainment Holdings shows shares in a strong decline until August when the decline eased:

Part of AMC Entertainment Holdings problems would come from the availability of other entertainment options (e.g. streaming services) while its fortunes are also tied to the success of Hollywood blockbusters or duds. In addition, the Company has spent much of 2017 working to reduce the debt accumulated when it acquired Carmike Cinemas, Odeon & UCI Cinemas Group and Nordic Cinema Group – all for at least about $1 billion.

In November, AMC Entertainment Holdings reported Q3 earnings with the CEO saying:

We have been predicting weakness in the third quarter industry box office, due to the quantity and subject matter of the films that were scheduled to be released. Not surprisingly, our foreshadow was accurate. In a high fixed-cost, low variable-cost business, this has led to lower EBITDA generation for AMC in the third quarter of 2017. We, however, remain bullish about the fourth quarter movie slate. Among many other hit films this year, movies like It in September, Thor: Ragnarok in November and soon Star Wars: The Last Jedi in December, demonstrate for all to see what we know to be true. When Hollywood and international movie makers offer appealing movies, Americans and Europeans will pour into our theatres in huge numbers and pay top-dollar to do so. In our view, the weakness of the summer box office is not indicative of a long-term trend, especially immediately after two and a half years of record box office performance and just before what we expect will be strong and robust consumer demand through year end. We are similarly confident and excited about the film slate that is coming in 2018 and again in 2019. Accordingly, we remain optimistic about the viability and strength of the movie theatre industry generally, and of AMC specifically.

Additionally, AMC has taken numerous crucial steps over the past ninety days to significantly enhance the prospects for AMC’s success in 2018, 2019 and beyond. We have sought to balance our capital allocation, with the aim of deleveraging over the next two years. We refocused our capital allocation toward the highest returns, importantly including high-return projects featuring the full renovation of key Odeon and former Carmike theatres, as well as buying back more than $30 million of AMC common shares at historically low prices. We strengthened our liquidity position by trimming our 2017-2018 capital expenditure plan by some $200 million and by generating more than $235 million in cash by monetizing non-strategic assets. We continued to dramatically enhance and upgrade the consumer appeal of our theatres in the U.S. and Europe by offering our guests a better product and continued to strengthen the bond we have established with our guests through our compelling marketing activity. We also are paying keen attention to improving our income statement by tightening down our costs and by institutingcreative pricing actions, both up and down, to drive increased revenues. These strategies, among others, will continue in 2018 and beyond, and we remain optimistic about our ability to deliver strong financial results in the coming years.

In December, UK based Cineworld Group Plc also agreed tobuy larger U.S. peer Regal Entertainment Group (NYSE: RGC) for $3.6 billion in cash in adeal to create the world’s second largest movie theatre operator after AMC Entertainment Holdings. The combined entity is expected to be better able to compete AMC.

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