Analyst: AMC Entertainment to Benefit From Strong Domestic Box Office

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The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

AMC Entertainment (NYSE:AMC) will report first-quarter 2014 results after the market close on Tuesday and host a conference call at 2 p.m. Pacific Time (dial-in: 877-407-3982; webcast: investor.amctheatres.com).

We expect Q1:14 results in line with our estimates for revenue of $618 million, versus consensus of $617 million and for earnings per share of 10 cents, versus consensus of 1 cent. We expect an increase in Q1:14 attendance per average screen, higher concession revenues due to a family friendly slate, and a decrease in average ticket price from the underperformance of the premium product.

2014 is off to a strong start for domestic box office results and IMAX films. Captain America: The Winter Soldier is producing summer blockbuster results in April, with $207 million since opening on April 4. The highest-grossing film quarter-to-date in Q2:13 was The Croods, at roughly $67 million. Q2:14 box office is up 20.1 percent compared to last year. The results of Captain America are being bolstered by the success of The Avengers franchise, which also helped Thor: The Dark World this past November.

Concessions revenues should exceed our estimates, driven by attendance upside and higher average concessions per patron. The release slate this quarter was dominated by family friendly movies, which tend to drive a higher attach rate for concessions. The top-two grossing films of the quarter were family friendly: The Lego Movie and Frozen.

Last year’s overcrowding of the summer and holiday release slates drove several large budget blockbuster flops. The recent successes of Gravity (in October) and The Lego Movie (in February) during traditionally slow months demonstrate that the studios are willing to spread out bigger movie releases. Spreading out the release slate should drive attendance in traditionally slower months. The release of Captain America: The Winter Soldier in April, kicking off summer action movies roughly a month sooner than normal, is a sign that studios may be coming around to the concept of spreading out the release slate.

Maintaining our OUTPERFORM rating and price target of $29. We arrive at our $29 price target by applying an 8.5x multiple to our 2014 EBITDA estimate of $488 million and adding the value of AMC’s 19.1 million shares of National Cinemedia. This is a slight premium to the other exhibitors, which we feel is warranted considering AMC’s high-return initiatives and superior film rental margins.

Michael Pachter is an analyst at Wedbush Securities.