Citi Sees 'Dramatically Reduced' Bankruptcy Risk For AMC Entertainment

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Citi analyst Jason Bazinet says the "short squeeze" in AMC Entertainment (AMC) is "not enough" and he maintains a Sell rating on the shares with a $2 price target. The stock closed Wednesday up 14% to $8.97.

The analyst reduced estimates given his outlook for the recovery of the U.S. box office. Over the past few months, AMC has improved its liquidity and altered its capital structure by raising over $1B through at-the-money equity offerings and two new debt raises, Bazinet tells investors in a research note. These actions have "dramatically reduced the risk of bankruptcy," says the analyst.

However, Bazinet finds it hard to assess the magnitude of a potential U.S. box office recovery in 2021 or even 2022. Further, the trend of releasing movies directly to the video on demand will likely continue, except for the big-budget films, even when COVID-19 headwinds subside, says Bazinet. As such, he does not believe the U.S. box office will return to 2019 levels in 2021 or 2022. Bazinet says AMC is overvalued at "prevailing levels under all the scenarios we tested."


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