AMC Entertainment Holdings, Inc. (AMC) is a theatrical exhibition company that operates globally. It licenses first-run films from distributors owned by film production companies and from independent distributors on a film-by-film and theatre-by-theater basis. It also offers food and beverages. .
Lions Gate Entertainment Corp. (LGF.A) engages in motion picture production and distribution, television programming and syndication, home entertainment, interactive ventures and games, and location-based entertainment operations internationally. The company operates through three segments—Motion Picture, Television Production, and Media Networks. The company releases in-house motion pictures theatrically, as well as films acquired from third parties.
As the U.S. economy experiences a fast-paced recovery, entertainment companies are likely to generate increasing foot traffic. So, both AMC and LGF.A’s financials are expected to recover in the coming quarters.
While AMC lost 11.8% over the past month, LGF.A lost 5.7%. In terms of their past year’s performance, AMC’s 129.6% makes it a clear winner given LGF.A’s 111.5% gain. But, which of these stocks is a better pick now? Let’s find out.
Latest Movements
To bolster its cash reserves, AMC filed a shelf registration with the U.S. Securities and Exchange Commission (SEC) on April 27to permit the issuance and sale of up to 43 million shares of the company’s Class A Common Stock through an “at-the-market” equity offering program. The company hopes that the sale of these shares will satisfy its liquidity needs for 2021 and its movie theater recovery in the second half of this year.
AMC has announced that it expects to reopen 99% of its U.S. theaters by March 26. Also, it has opened two brand new theaters in Los Angeles.
In February, LGF.A and Sony Corporation’s (SONY) Sony Pictures Home Entertainment, Inc. agreed to a multi-year deal in which SPHE will handle distribution services for LGF.A’s physical home entertainment releases in the U.S. and Canada. LGF.A will continue to maintain its own independent sales and marketing teams while leveraging SPHE's best-in-class supply chain and distribution services.
Recent Financial Results
AMC’s adjusted revenue for its fiscal year 2021 first quarter, ended March 31, decreased 84.2% year-over-year to $148.30 million. The company’s operating loss was $427.80, which represented a 78.5% year-over-year decline. Its adjusted net loss has increased 144.8% year-over-year to $566.90 million. And its adjusted loss per share decreased 36% from the prior-year period to $1.42.
However, AMC’s net cash provided by financing activities came in at $854.70 million, which represents a 173.6% year-over-year increase. Cash and cash equivalents had increased 163.7% sequentially, as of March 31.
LGF.A is scheduled to release its fiscal year 2021 fourth quarter and full year results on May 27, after the market closes. For its fiscal year 2021 third quarter, ended December 31, its revenue rose 12.3% sequentially to $836.40 million. Its operating income came in at $37.10 million, up 24.9% from the prior quarter. However, its net loss decreased 84.8% year-over-year to $13.90 million. And its loss per share decreased 600% year-over-year to $0.06.
However, LGF.A’s net cash provided by financing activities came in at $137.4 million, compared to $237.70 million in the prior-year period. Its cash and cash equivalents had increased 182.1% year-over-year, as of December 31, 2020.
Past and Expected Financial Performance
AMC’s revenue fell at a 37.5% CAGR over the past three years. The CAGR of the company’s total assets has been 1.6% over the past three years. But the stock’s EBITDA fell by 250.2% year-over-year.
Analysts expect AMC’s revenue to increase by 1815.4% in the current quarter (ending June 30), 103.2% in the current year and 89.2% next year. Its EPS is expected to be negative in the coming quarters, but increase by 81.6% in the current quarter, 78.9% in the current year, and 71.8% next year. AMC’s EPS is expected to decline at a rate of 217% per annum over the next five years.
In comparison, LGF.A’s revenue declined by a 9.8% CAGR over the past three years. The CAGR of the company’s total assets also fell at a 2.9% rate over the past three years. However, the stock’s EBITDA saw a 9.8% year-over-year growth.
Analysts expect LGF.A’s revenue to decrease 0.8% in the quarter ending June 30, 2021, and 17.3% in the current year, but then increase 11.4% next year. However, its EPS is expected to decline 76.3% in the current quarter, but increase 55.5% in the current year, and again decline 3% next year. Furthermore, its EPS is expected to grow at a rate of 15% per annum over the next five years.
Profitability
LGF.A’s trailing-12-month revenue is 2.7 times AMC’s. LGF.A is also more profitable, with a 45.5% gross profit margin versus AMC’s negative value.
Also, LGF.A’s 1.4% ROA compares favorably with AMC's negative value.
Valuation
In terms of forward EV/Sales, AMC’s 6.02x is 225.4% higher than LGF.A’s 1.85x. So, LGF.A looks more affordable.
POWR Ratings
While AMC has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system, LGF.A has an overall B rating, which equates to a Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.
Both AMC and LGF.A have a C Growth Grade, which is consistent with their earnings and revenue growth prospects. LGF.A has a B grade for Momentum, due to its impressive price gains over the past year. But AMC's C grade for Momentum reflects its mixed price performance.
Also, in terms of Value Grade, LGF.A has been graded a C, given its marginally higher valuation versus its peers. In comparison, AMC's D Value Grade signifies its overvaluation.
Of the 8 stocks in the Entertainment - Movies/Studios industry, AMC is ranked #6 and LGF.A is ranked #1.
Beyond what we’ve stated above, our POWR Ratings system has also rated both AMC and LGF.A for Momentum, Stability and Quality. Get all AMC ratings here. Also, click here to see the additional POWR Ratings for LGF.A.
The Winner
We believe that AMC and LGF.A are well-positioned to capitalize on the industry’s tailwinds given the expected increase in foot traffic for movie theaters and other upcoming projects in 2021. However, LGF.A appears to be a better buy based on its stable financials and higher profitability.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Entertainment - Movies/Studios industry.
AMC shares were trading at $9.51 per share on Friday afternoon, up $0.51 (+5.67%). Year-to-date, AMC has gained 348.58%, versus a 13.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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