Photo by Donreál Lunkin on Unsplash

AMC Entertainment (AMC) said in its Q1 earnings release that since April 1, movie theatre demand has been booming. Adam Aron, AMC's CEO, and Sean Goodman, CFO, both said (during the earnings call) they expect AMC will be cash flow positive for the nine months from April through December 2025.

This has probably already started. According to Rotten Tomatoes, this weekend's box-office receipts soared to their highest Memorial Day weekend ever.

This article projects what AMC stock could be worth assuming the company generates strong free cash flow.  I estimate that it could be worth almost twice its present price. 

I will show how this works out on an expected return basis, using estimates for free cash flow, FCF margins, and FCF yield metrics to value the stock. Then I use a probability analysis to project an expected return for investors.

Free Cash Flow Projections

Analysts surveyed by Seeking Alpha (7 analysts)  now project that sales for 2025 will rise to almost $5 billion ($4.96 billion) from $4.185 billion last year. And for next year, 6 analysts have an average revenue forecast of $5.29 billion.

That means on a run-rate basis, AMC could average $5.125 billion in revenue for the next 12 months (NTM).

Let's assume that the company can generate at least a 5.0% free cash flow (FCF) margin on those sales:

  5% FCF margin x $5.125 billion NTM revenue = $256.3 million in NTM FCF

What would the market value AMC at if this happened?

Valuation Estimate and Target Price

Here is one way to project that. Use a FCF yield metric. That means that the market values this FCF as if it were paid out 100% (which it won't, since debt has to be paid down) to shareholders.

In that case, the yield would be around 5% (i.e., sort of a theoretical 5% dividend yield).

So, mathematically, we take the estimated FCF and divide it by 5% to project out the market value of AMC Entertainment:

  $256.3m FCF est. / 0.05 = $5,126 million market cap

In other words, the market cap will be $5.1 billion (assuming the market gives the stock a 5% FCF yield valuation. That is 264% higher (i.e., $5.1b/$1.4 = 3.64) than its present stock market cap of $1.4 billion, using Yahoo! Finance's market cap calculation today (May 23).

Here is the resulting price target for AMC stock ($3.24 on Friday, May 23):

  3.64  x $3.24 price today = $11.79 per share

However, just to be conservative, let's assume AMC Entertainment makes just a 3% FCF margin and the market gives it a higher FCY yield of 8%.

    $5.125 billion NTM revenue x 3.0% = $153.75 million FCF

Using an 8% FCF yield is the same as multiplying by a factor of 12.5x (rather than 20x with a 5% FCF yield):

   $153.75 m FCF x 12.5 = $1.92 billion market cap

That is 37% higher than today's $1.4 billion market cap. So, AMC stock would be worth:

   1.372 x $3.24 price today = $4.44 per share

In other words, AMC can be worth between $4.44 (i.e., the 3% margin and 8% FCF yield scenario) and $11.79 (5% margin and 5% yield scenario). We can use that to compute an expected return (ER)

Expected Return (ER)

Let's assume there is a higher probability that the 3%/8% scenario occurs, say a 75 to 25% chance for each (the total has to be 100%).

Here is how we calculate an expected return (ER):

  75% x $4.44 price target = $3.33   +

  25% x $11.79 price target = $2.95  =

       Total Price Target  = $6.28 per share

  $6.28 / $3.24 today -1 = 1.94 -1 = +94% upside

In other words, there is an ER of 94%, or almost a doubling in AMC stock.

The bottom line is that we can expect AMC stock to just about double, using conservative assumptions.  All will depend on how FCF positive the company turns out to be for the next nine months. 

If this weekend's box office results are any indication, there is a good chance that could happen.

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