AMC – 10% Post Earnings Pop and Captain Marvel Catalyst

March 25, 2019

Introduction:    

 

Captain Marvel has pumped life back into the domestic box office, delivering an epic $153 million opening weekend debut, while hauling in $455 million worldwide. AMC Entertainment Holding (AMC) has been struggling as of late on the heels of a record breaking year at the box office in 2018 in conjunction with the disastrous stock market in Q4 of 2018. Despite a robust slate of movies for 2019, the year has been off to a sluggish start at the box office. AMC will likely have a nice catalyst as the slate of 2019 movies roll out and the box office numbers strengthen. To smooth out these box office revenue fluctuations, AMC has a rapidly growing loyalty program with over 700,000 members to evolve a large segment of its business mix towards a subscription based model. This will allow durable and predictable revenue streams in the backdrop of changing box office dynamics. AMC offers a great dividend yield of over 5% and accelerating revenue and EPS growth. The compnay is reengaging the consumer via digital, mobile and loyalty program options, reformatting theaters to enhance the user experience and international expansion augmented by a healthy share buyback program. The stock looks very attractive considering its depressed valuation, solid Q4 earnings that drove the stock higher and company initiatives to drive the consumer experience. The long term growth narrative remains intact while revenue continues to grow at a healthy clip.  

 

2019 Box Office Finally Jolted:  

 

Disney (DIS) has finally released its first highly anticipated film of 2019 with Captain Marvel (the first female lead for a Marvel film). The film has performed exceptionally well, delivering an opening weekend box office gross of $457 million worldwide and $153 million domestically (Figure 1). The first two months of the year for the domestic box office has been a struggle relative to 2018. Captain Marvel brought in the third highest March opening of all-time and places the film on par with past blockbusters such as The Dark Knight, The Hunger Games and Rouge One.  Dumbo, Avengers 4, Aladdin, Toy Story 4, Lion King, Frozen 2 and Star Wars Episode 9 is Disney’s slate of films that will bode well for the box office on the domestic front as these films stand to rack in billions in box office receipts. It’s notworthy to point out that Disney is poised to defend its box office dominance again in 2019 for the fourth consecutive year.

 

 

 

AMC Pops Double Digits – Q4 Earnings:

 

AMC has been establishing firm footing of improving fundamentals across the entire enterprise which were highlighted during its latest earnings announcement for Q4 2018. For Q4 2018, AMC beat on both the top and bottom line with EPS beating by $0.22 and revenue beating by $10 million. Q4 attendance in the U.S. set a record for the quarter and coupled with the quarterly numbers, the stock popped 10%.

 

“AMC continued to deliver strong results in the fourth quarter of 2018, capping a record-setting full year performance, the best-ever in our 98-year history,”. “The tremendous momentum of the industry box office, which was the fifth record-setting year in the last seven years, combined with AMC’s transformative growth initiatives and the popularity of the new AMC Stubs A-List subscription program, drove full year global attendance to an all-time high of 359 million guests, up 6.1% in the U.S. markets, resulting in strong financial performance across the board.”

 

                Adam Aron, CEO of AMC

 

For the full year of 2018, the U.S. box office was up 6.9% to $11.9 billion, marking the highest grossing year ever recorded with February, April, June, and October setting all-time box office monthly records. AMC’s loyalty program now has over 700,000 subscribers which is expected to generate more than $150 million of annual recurring revenue. This will provide further penetration on the revenue front in excess of $300 million when factoring in food and beverage purchases and full fare tickets purchased by bring-along guests such as family and friends. The loyalty program provides an opportunity to shift a segment of its business mix to a subscription-based model, providing durable and predicable revenue streams, mitigating box office fluctuations and driving long-term customer loyalty.

 

Conclusion:

 

AMC is sitting on a host of positive tailwinds despite the slow start to the 2019 box office numbers domestically. A large slate of movies is just now beginning to be released and Captain Marvel has set the stage with an impressive debut. AMC is reengaging the consumer via digital, mobile and loyalty program options, reformatting theaters to enhance the user experience and international expansion. The loyalty program now has over 700,000 members and provides an opportunity to shift a segment of its business mix to a subscription-based model, providing durable and predicable revenue streams, mitigating box office fluctuations and driving long-term customer loyalty. The stock is a compelling buy with a dividend yield of over 5% and accelerating revenue and EPS growth. AMC has recently established relationships with Facebook and Groupon to drive ticket sales to AMC theaters on the digital front as well. The stock looks very attractive considering its depressed valuation, industry strength forecasted through 2019 coupled with a slew of company initiatives to drive the consumer experience.

 

Disclosure: The author holds may engage in option selling in any of the mentioned underlying stocks or ETFs. The author has no business relationship with any companies mentioned in this article. He is not a professional financial advisor or tax professional. This article reflects his own opinions. This article is not intended to be a recommendation to buy or sell any stock or ETF mentioned. Kiedrowski is an individual investor who analyzes investment strategies and disseminates analyses. Kiedrowski encourages all investors to conduct their own research and due diligence prior to investing. Please feel free to comment and provide feedback, the author values all responses. The author is the founder of www.stockoptionsdad.com where options are a bet on where stocks won’t go, not where they will. Where high probability options trading for consistent income and risk mitigation thrives in both bull and bear markets.

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