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AMC Stock Skyrockets, but Why?

It has been a tumultuous month for AMC Theaters (NYSE: AMC). The COVID-19 pandemic took a major toll on the entertainment company, leading many industry insiders to speculate that they were facing bankruptcy. As states around the country begin to ease restrictions designed to contain the virus, investors seem to have more faith in AMC’s longevity. When the stock market closed on Tuesday April 28th, AMC’s stock had gone up by 23%, settling at $4.14 a share.

Stock Market Activity Tied to Good News Surrounding COVID-19 Pandemic

Today’s surge in AMC’s stock price seemed to be driven by the news that Texas will not be extending their shelter-in-place protocols. The last big jump in AMC’s stock price was on April 17th when it went up by 31%. That surge was prompted by similar circumstances.

On April 16th, news broke that a University of Chicago clinical trial testing the efficacy of a potential COVID-19 treatment yielded promising results. The reports of rapid recoveries had many hoping that the pandemic will be brought under control sooner rather than later.

Another big piece of news that broke on the 16th was President Trump’s announcement of the plan to re-open the economy in phases. States could begin “Phase One” once they have met the “gating criteria”. Movie theaters are one of the businesses that would be allowed to re-open in “Phase One”.

Both of the aforementioned pieces of news that broke late on April 16th led to a big stock market rally on April 17th. AMC’s stock skyrocketed so dramatically that day because the rally was compounded by news that the company issued $500 million in first-lien notes to help them stay afloat during the pandemic. Those promissory notes were issued with a stipulation that the debt be repaid by 2025.

amc stock
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Does This Mean AMC is in the Clear?

In spite of AMC’s good performance on the market, the company’s future is still uncertain. Even though some states are moving forward with plans to re-open their economy, AMC has made it clear that they will not be opening immediately.

In order for the theaters to re-open, they need to have movies to show. The on-demand release of Trolls and the delay of No Time To Die are prime examples of how Hollywood is handling the COVID-19 pandemic. While Christopher Nolan’s Tenet and the Mulan remake are both sticking to their current release dates, the theaters cannot open solely for two movies. The staggered re-opening of the country makes it difficult for Hollywood executives to plan the rest of 2020’s box office.

AMC acknowledged their predicament in a statement, “To be able to open, we also need a line of sight into a regular schedule of new theatrical blockbusters that get people truly excited about returning to their favorite movie theaters … While we expect to open our theaters in the weeks ahead of these new blockbusters, utilizing creative programming of immensely popular previously released films, we would be wise to do so only directly in advance of the release of major new movie titles.”

It remains to be seen how AMC will handle its re-opening. The company will have to coordinate its return to operations with the stabilization of new Hollywood releases, and it will have to do that while observing health guidelines. That is an extremely precarious position to be in for a company that until recently did not expect to make it past July.