The newly public AMC Entertainment was the favorite stock of hedge funds in the first quarter, and analysts say the company is on a tear, buoyed by projections of a better-than-expected summer blockbuster season.
The stock of movie theater chain AMC Entertainment is as hot as any film scheduled for release during the summer movie season.
At least that’s what analysts and hedge fund managers appear to think.
AMC, the second-largest movie theater chain in the country, ranked as the top stock pick among hedge funds in the first quarter of this year, according to data from Whale Wisdom, a site that aggregates and analyzes 13F filings from hedge funds. AMC topped Whale Wisdom’s first quarter heat map, which factors in the number of funds that added a stock to its portfolio, increased their holdings in a stock, and the average position in hedge fund portfolios a stock held over the quarter. Hedge funds increased their holdings of AMC from $46 million at the end of the year to $104 million as of March 31, according to data from Insider Monkey.
Part of the reason for the enthusiasm is owed to the summer movie season, which is off to a strong start with last weekend’s $111 million holiday box office take for X-Men: Days of Future Past. Roughly 40% of Hollywood’s annual box office gross, which totaled around $11 billion in 2013, is generated from Memorial Day through Labor Day — last year’s summer season collected a record $4.76 billion in ticket sales — and analysts were initially down on the prospects for this year’s slate of films. But the strong performance of X-Men has analysts like Eric Wold of research firm B. Riley now projecting that the summer season will perform better than originally expected.
In a recent note on AMC, Wold wrote that there was a 22% increase in year-over-year ticket sales for April, and that while The Amazing Spider-Man 2 was lagging its franchise peers, strong-than-expected results from the latest X-Men movie, as well as Captain America: The Winter Soldier and Godzilla, and “surprise hits” like Neighbors and Heaven is for Real have bolstered this summer’s box office outlook. He added that next summer could very well be Hollywood’s biggest ever and that AMC is poised to take full advantage, provided it continues its improvement projects and attendance growth.
“This year is good, but next year looks phenomenal,” Wold said. “The core franchises that everyone knows, those are looking great. You have the next Avengers, Star Wars, Mission Impossible, James Bond,Hunger Games. Anything they can do to position themselves to continue customer growth and getting them to spend more is going to be even better next year. Next year you’ve got a phenomenal slate of movies.”
AMC went private in a private equity buyout in 2004. In 2012, it was sold to Chinese conglomerate Wanda for $2.6 billion in equity and debt assumption. AMC in December returned to the public markets and during its first trading quarter has emerged as the top stock pick among hedge funds.
While the summer movie season is certainly an attractive reason for hedge funds to buy into AMC stock, the movie theater chain has been making its own improvements to help reignite attendance, which has been depressed across the movie industry over the last few years (revenue gains have come mostly from higher ticket prices, not increased attendance). Wold said that AMC has been able to increase its attendance by upgrading and renovating its theaters, as well as generating more revenue per customer once they buy a ticket in recent months.
“They’re doing re-seats, ripping up the seats in the auditorium and replacing them with more comfortable seats,” said Wold, who upgraded AMC stock, which went public in December around the $18.90 mark and is currently trading around $23.19 per share, from “neutral” to “buy” and increased its price target from $25.50 to $28 on Tuesday. “You end up with fewer seats, but you’re seeing attendance double, people see comfortable seats and higher ticket prices and they’ve got a great strategy on hand to increase revenue growth and profitability. They outperformed the industry in the first quarter. They stand a better chance of outperforming in the summer periods and taking customers from others.”