AMC Entertainment (AMC) stock is still worth 45% more at $17 per share. Â But today's it's way down at just $12.60 today (June 17), off 53.7% YTD and off 80% from its peak. However, AMC stock has a good shot of getting to that target price.
For one, the summer movie season is off the ground with a bang. The country’s largest movie chain believes it has a number of huge blockbuster box office films. The Top Gun: Maverick movie from Paramount starring Tom Cruise has helped it get off to a good start. As of Jun. 16, it grossed over $415.9 million just two weeks from release on Memorial Day, according to The Numbers.
Second, the sheer number of large-budget films and movies will exceed those done in 2021 and 2020. For example, there were 403 total films released in 2021, up slightly from 334 in 2020, according to Statista. That is down from 792 in 2019 and 873 in 2018. This year alone, the film industry is set to easily top the 2021 number. Since AMC is by far the largest movie chain in the world, this will flow straight into revenue at AMC Entertainment.
Lastly, once the company can start to approach free cash flow (FCF) profits, the stock will take off. I suspect that will happen closer to the end of the year. Analysts project revenue topping $5.2 billion, up 18.2% in 2023 over 2022. That should lead to the company becoming free cash flow (FCF) positive, recession or not. The market will anticipate this pushing the stock higher.
For example, analysts are still projecting negative earnings not only for 2022 but also for 2023. Without positive FCF, it won’t get back into the black earlier.
Moreover, it has been over two years since the company has paid a dividend. That is what helps the stock stay stable in rough periods like we are going through now. The last dividend it paid was in Q1 2020, and that was severely reduced from Q4 2019.
What AMC Stock Is Worth
With just a 5% FCF margin, when revenue is forecast to hit $5.26 billion, AMC will generate $263 million in FCF. Valued at a3% FCF yield, Â its market capitalization (cap) will rise to $8.766 billion. This is because using a 3% FCF yield is the same as multiplying the FCF estimate by 33.3 times. So $263 million x 33.3 equals $8.766 billion in target market cap.
That number is 44.9% over AMC’s market cap of $6.05 billion on Jun. 17. That implies that AMC stock is worth about $17 per share (i.e., 44.9% higher than the $11.79 price today). This could take to the end of 2022. But here is one way to play this with call options.
The Dec. 16 $17.00 strike price calls are selling for just $3.04 at the midpoint.Â
That is less than one-quarter of today's stock price, so it offers a great way to leverage an investment in the stock. In fact, it might even make better sense to just buy the $13.00 strike price, because that sells for just $3.97, not much more than the $17 strike price call. But it is also closer to being in-the-money.Â
Both of these are excellent plays for the long term. Moreover, given that the option has 182 days to become profitable, it also provides plenty of time for investors to roll over to a later date strike price, in case it takes longer than the end of the year.
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