Investors should stay away from AMC Entertainment even as the U.S. movie theater industry shows signs of life, according to MKM Partners. The theater chain reported a loss of 52 cents per share on $786 million in revenue for the first quarter, beating estimates on both counts. The stock rose in premarket trading . MKM analyst Eric Handler acknowledged the fundamentals of AMC and the movie business are now improving after the pandemic, but maintained his skepticism of the stock. "We remain concerned about the slower-than-anticipated pace of the theatrical industry's overall recovery, most notable a 30% decrease in content volume attributed to the lack of mid-level movies. In addition, specific to AMC, it could take many years for the company to grow into its capital structure, which has seen a 400% increase in shares outstanding since the start of the pandemic along with its sizable $5.57bn of debt," Handler wrote in a note to clients. MKM kept its price target at $1 per share. AMC, which traded above $60 per share less than a year ago, closed at $12.52 per share on Monday. MKM estimated that movie theater business will be at 80% or higher of pre-pandemic levels for the rest of the year, but said the stock still appears wildly overvalued. "If we assume AMC traded at a 9x EBITDA multiple and maintained its current $10.3bn enterprise value, it would need to generate an improbable $1.15bn of adjusted EBITDA to justify the current share price. This total is 117% greater than our 2023 adjusted EBITDA forecast and is 23% higher than AMC's record high of $929mn from 2018," Handler wrote. — CNBC's Michael Bloom contributed to this report.
Pedestrians pass in front of an AMC theater in New York.
Scott Mlyn | CNBC
Investors should stay away from AMC Entertainment even as the U.S. movie theater industry shows signs of life, according to MKM Partners.