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PreMarket Prep Stock Of The Day: AMC Entertainment

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action fo

Benzinga · 05/11/2020 17:03

Benzinga's PreMarket Prep airs every morning from 8-9 a.m. ET. During that fast-paced, highly informative hour, traders and investors tune in to get the major news of the day, the catalysts behind those moves and the corresponding price action for the upcoming session.

On any given day, the show will cover at least 20 stocks determined by co-hosts Joel Elconin and Dennis Dick along with producer Spencer Israel.

For those who don't have the time to tune in live or listen to the podcast, Benzinga will highlight one stock that merits further discussion. This analysis is not a buy or sell recommendation.

Investors and traders love a story and will be quick to react to news, no matter how bizarre or far-fetched. On Sunday, the U.K.'s Mail newspaper reported that Amazon.com, Inc. (NASDAQ: AMZN) is "circling" AMC Entertainment Holdings Inc (NYSE: AMC), saying "the duo are said to have held talks about a potential takeover of AMC by Amazon."

The corresponding price action instigated by that rumor makes AMC the PreMarket Prep Stock Of The Day.

AMC's Trend Since 2017

While the broad market has prospered in recent years, AMC has not. After reaching $33.25 in January 2017, it went into freefall, not finding a bottom until November of that year at $9.35. The stock rebounded to end the year at $13.55.

It rallied over $20 in the fall of 2018, but withered back to end that year at $12.28. In 2019, there was similar price action with a rally to $17.07 in April, but faded to end the year substantially lower at $7.24.

AMC Follows The Market Lower In 2020

AMC was able to hang in there during the early part of the market retreat in February, ending the month slightly in the red at $6.26. AMC was not spared in March, when it swooned to $1.95. The stock revisited that level on April 13.

Just as the market recovered in April, so did AMC, rallying to $5.53 and ending the month not far off that level at $4.92. It drifted lower for the early part of May and was consolidating at the $4 area before the rumor published by The Mail. 

Why Would Amazon Buy AMC, Especially Now?

Contrary to the price action in the premarket, where the issue raced from Friday's close ($4.10) all the way to $7.55, the co-hosts and producer of the PreMarket Prep could find no reason why Amazon would consider buying AMC. 

Deadline reported Monday that its sources said there are no such talks occurring. 

Of course, Amazon did dabble in brick-and-mortar retail in 2017 with the purchase of Whole Foods. At that time, Whole Foods was a viable company that had established its presence in strategically important areas of the country.

On other hand, AMC has had inconsistent earnings over the last few years, and the damage inflicted by the COVID-19 crisis is yet to be determined.

With no forthcoming announcement from Amazon, the hosts of PreMarket Prep said the rally was a "gift" to longs in the issue and urged caution in chasing the issue up over 70%. The full discussion can be found here:

AMC's Premarket Fade Continues Into Regular Session

As the reality of the deal taking place set in, the issue began to fade in the premarket. By the opening of the regular session, it had fallen into the mid-$6 handle. Off the open, it immediately peaked at $6.41 and fell to $4.89 before staging a rebound into the mid-$5 handle as of noon.

AMC shares were trading 42.44% higher at $5.84 at the time of publication. 

AMC Moving Forward

If an investor believes that Amazon will purchase AMC at a premium to its current price ($5.56), which is 35%  higher than Friday's close and a 26% discount from the premarket high, they should consider two things.

First of all, the immediate downside in the issue if no deal materializes is at least down to Friday's close of $4.10. Longer-term, if the company cannot repair its already challenged business plan in the midst of the pandemic, a retest of the April low ($1.95) may be on the horizon.

Photo by JAH2k via Wikimedia