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Here’s What Mittleman Thinks About AMC Entertainment Holdings (AMC)

New York-based Mittleman Investment Management – which recently released its Q2 investor letter – is bullish on AMC Entertainment Holdings Inc (NYSE: AMC). The investment firm believes that the company’s business has been performing well and its shares could hit $32 per share. In the letter, Christopher Mittleman, chief investment officer and managing partner of Mittleman Investment, discussed its thesis on AMC, which was one the investor’s best performers in the second quarter. Here is what Mittleman said about the company:

AMC Entertainment (AMC) was our second best performing stock of Q2, but the move up was surprisingly muted given the explosive rebound in the box office. Q2 2018 saw box office receipts soar to an all-time record, not just for any Q2, but for any quarter in history, putting the box office up 9.6% YTD through 6/30/18, and making 2018 the first year to surpass the $6B total box office mark so quickly. All of which should again make the bear thesis that the movie theater business is a dying industry seem that much more flimsy. To put it in the simplest perspective, AMC dropped from $35.50 on Dec. 31, 2016 to $10.80 on Nov. 17, 2017 as the box office declined 2.7% last year. This year, the box office is up 9.6% YTD and breaking all-time records again, and yet AMC is only back up to $15.90, with a nearly 20% FCF yield, and a 5% dividend yield. AMC is also benefitting from share buybacks, cost cutting efforts, and non-core asset sales that have reduced leverage.

The company introduced a sustainably priced subscription option to compete with the unsustainable offering from Moviepass. Its AMC Stubs loyalty program reached 15M members, up from 2.5M members just over 2 years ago when CEO Adam Aron revamped the program. The company also said that it was considering an IPO of its European division in London as valuations for movie theaters in Europe are generally much higher than in the U.S., offering an attractive deleveraging option.

And yet with all of this, AMC’s share price has recovered less than half of what it lost in 2017, while nearly 30% of the float remains short. Why? It’s hard to imagine, but in spite of the box office hitting new records almost every 2-3 years, there remains a large contingent of investors who believe the box office is dying because they enjoy watching “The Crown” at home on Netflix, as if Netflix dooms the theater business any more so than Blockbuster Video and the VCR did in the 1980s.

There were congressional hearings in 1982 over whether or not the VCR would destroy the studios and/or advertising on free TV. Those concerns were wrong then, and we believe they are wrong now, and that the numbers speak for themselves, and the stock will not be able to stay this low for much longer, as we look for $32 per share in fair value (9x EBITDA of $950M, 12x FCF of $350M), up 101% from the current price of $15.90.

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AMC Entertainment Holdings Inc (NYSE: AMC) has been performing well on the share market. Year-to-date, the company’s stock has gained nearly 15%. While the share price has moved up 33.08% over the past 12 months. AMC has a consensus average target price of $20.83 and a consensus average recommendation of ‘OVERWEIGHT, according to analysts polled by FactSet. On Wednesday, the stock was closed at $17.70.

Meanwhile, AMC isn’t a very popular company among hedge funds tracked by Insider Monkey. As of the end of the fourth quarter of 2017, there were 14 funds in our database holding positions in the company including PineView Asset ManagementTricadia Capital Management, and Marlowe Partners.

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