AMC entertainment is on track for blockbuster results

AMC rides wave of blockbuster movie openings

While the movie industry is still a bit shy of regaining its pre-pandemic business levels AMC Entertainment (NYSE: AMC) is on track for a blockbuster quarter. The last few months have seen no end of high-grossing movie openings, and the trend is set to continue. The latest is Disney’s (NYSE: DIS) Thor: Love And Thunder, which amazed critics with its $140+ million opening weekend. What this means for AMC Entertainment and its investors is an opportunity to get into this stock at the lowest levels in over a year and well before the good news is released. AMC Entertainment is scheduled to release earnings in the first week of August and should easily outpace the consensus.

The analysts expect revenue to grow 39% sequentially to $1.18 billion, and we think this underestimates the rebound. The revenue growth is also 16% higher than last year but still more than 20% down from the 2019 quarter. In our view, revenue could easily top the $1.25 billion mark and come with favorable guidance, if not profitability. In regard to the analyst's ratings, there hasn’t been much activity over the past year, and what there is, isn’t bullish. The two commentaries that have any relevance to today’s opportunity have the stock pegged at a weak Sell with a price target about 50% below the current price action. If the company can perform as we expect, the analyst sentiment should also begin to shift.

The institutions are buying AMC Entertainment

The institutional holdings in AMC Entertainment aren’t large at 35%, and the activity isn’t robust, but it is bullish. The institutions have been net buyers since the pandemic set in, and that trend extended into the 3rd quarter. This has the market tilted in favor of the bulls despite the high short interest, which we view as another catalyst for higher share prices. The short interest is running very close to 20% and has not changed much over the past month or so. Assuming the Q2 results align with our expectations, the short-covering should begin shortly after. If we say the results are even better, we may see a short-squeeze that takes the price action up to the $30 level or higher, a gain of more than 100% from current price levels.

CEO Adam Aron recently commented on the short interest and when he thought it was right to “pounce” on the short market and what he said amounts to “wait and see what we report for Q2”.

"I keep getting asked, 'Wen pounce?' Know this: 1. I always keep my word. 2. I’ve said publicly that a pounce would not happen before Second Quarter 2022 earnings are announced. 3. Press release issued today that Q2 earnings are to be announced on Thurs, August 4. Read between those lines."

The technical outlook: AMC Entertainment holdings braces for big move

Shares of AMC Entertainment Holdings have been in a correction for several quarters but hit a bottom as the summer was beginning. The price action is drifting higher in the wake of that bottom and looks ready to move higher given the right catalyst. Assuming the Q2 report is a good one, we see this stock moving above the 150-day EMA at least and possibly above the $25 level as well. However, if the shorts start running scared, this stock could easily move above the $30 level.