Author: Noah Kiedrowski

The Market Says AMC Is Worthless - I Disagree

Posted on by Noah Kiedrowski

The market has rendered AMC Entertainment (AMC) a worthless company. The stock has nosedived from a 52-week high of $17 to $6.50 per share, resulting in a 62% reduction in market capitalization. Even worse, AMC was $33 per share in 2017 resulting in a multi-year meltdown of 80%. The catastrophic stock collapse has occurred in the backdrop of record numbers at the domestic and worldwide box office. There’s a paradoxical disconnect between the record multi-year box office stretch and AMC’s stock price.

AMC recently posted a strong quarter and has diversified its revenue stream by rolling out its own loyalty program that now has over 900,000 members to evolve a large segment of its business mix towards a subscription-based model to smooth out box office revenue fluctuations. This will allow durable and more predictable revenue streams in the backdrop of changing box office dynamics. AMC recently posted a record third-quarter attendance in the U.S. and international markets along with strong Q3 numbers. At current levels, the stock sports a hefty dividend yield of ~11% due to the decimated stock price.

Streaming threats from the likes of Netflix (NFLX), excessive debt load, bleak 2020 movie slate while being one of the most heavily shorted stocks (~60% of the float being sold short) has decimated the shares of AMC. I feel that AMC has significant upside considering its depressed valuation, improving financials, upcoming deleveraging, and creative initiatives to drive revenue growth.

Record Q3 2019 Numbers

First, AMC has been firing on all segments of its business on improving fundamentals across the entire enterprise over the previous quarter. For Q3 2019, AMC beat on the top line revenue with $1.32 billion, beating estimates by $10 million and missing on the bottom line with -$0.53 EPS, missing by $0.10 per share. Revenue grew by 7.8% and a record third-quarter attendance in each of its U.S. and international markets. Continue reading "The Market Says AMC Is Worthless - I Disagree" →

2020 Market Outlook - Margin Of Safety Required

Posted on by Noah Kiedrowski

Euphoric 2019 and Bleak 2020 Forecast

All three major indices ended 2019 in rarified territory as the Santa Claus rally capped off a euphoric market. The S&P 500, Nasdaq, and Dow Jones ended 2019 at all-time highs. The S&P 500 posted its best return in nearly 20 years, coming in at a 28.9% return.

2019 was a unique year on multiple fronts where the markets roared higher despite impeachment proceedings, U.S.-China trade war, Federal Reserve actions, inverted yield curve, and slowing economies abroad. Furthermore, for the first time in history, the U.S. economy has started and ended a decade without a recession, with the economy expanding for a record 126 consecutive months (Figure 1).

2020
Figure 1 – All three major indices reached all-time highs at the end of 2019

Currently, the markets are faced with stretched valuations absent of any significant volatility over the past few months. 2020 predictions are shaping up to widely variable from the collective grouping of investment firms (Figure 2). The average forecast is looking bleak after a banner 2019. I feel these bleak forecasts are rooted in political uncertainty, geopolitical tensions, slowing company buybacks, stretched valuations, and inevitable market volatility. As 2020 unfolds, a margin of safety via raising cash as a core position may be wise. Continue reading "2020 Market Outlook - Margin Of Safety Required" →

American Airlines Presents A Compelling Buy

Posted on by Noah Kiedrowski

American Airlines (AAL) is a cheap stock by many metrics and currently presents the best value in the airline sector based on valuation. Boeing’s (BA) 737 Max groundings have already been absorbed by the airline and moving forward, American is looking to settle with Boeing. Boeing took a $4.9 billion after-tax charge in Q2 to compensate airlines for the grounding. American is expected to see some cash from that amount once a settlement is reached between the two parties. The company is reducing its debt load, increasing free cash flow, returning value to shareholders, expanding its network while having the youngest fleet among the major airlines. American Airlines is near a 5-year low on the cusp of all the aspects mentioned above coming into the fold for 2020 and beyond. I feel that this stock presents a compelling buying opportunity in the backdrop of a frothy market for long-term investors.

Compelling Value

American presents a compelling value proposition across its enterprise with growth, decreased capital expenditures, youngest fleet of aircraft, debt reduction and increases in free cash flow. In an effort to drive growth, the company is expanding its network to add more gates in profitable hubs for 2019, 2020 and 2021 in Dallas-Fort Worth, Charlotte and Washington D.C., respectively (Figure 1). Early results indicate that hub growth is already creating value. Passenger revenue per available seat mile (PRASM) grew by 3.3% in 2019 from expansion in the Dallas-Forth Worth hub.

American Airlines
Figure 1 – 737 Max grounding and network growth plans already creating value

Starting in 2020, capital expenditures will begin to decrease, resulting in free cash flow increases drastically. At the end of 2019, over $30 billion was invested in the airline, and throughout 2020 and 2021, expenses will dramatically be reduced (Figure 2). These investments have resulted in American having the youngest fleet in the industry with over 50% of its aircraft being less than 10 years old (Figure 3). As expenses decrease, free cash flow will increase substantially to allow American to deleverage their debt. American will increase its free cash flow by $5.5 billion over 2020 and 2021 and over the long-term translating into an $8-$10 billion reduction of debt by 2024 (Figure 4). The company is in a position to increase earnings per share and income, even if the business doesn’t grow. Continue reading "American Airlines Presents A Compelling Buy" →

Baby Yoda and Phase One Trade Deal Propels Hasbro

Posted on by Noah Kiedrowski

Baby Yoda and the phase one trade deal comes to Hasbro’s (HAS) recuse after a disastrous Q3 earnings call that resulted in the stock sinking 17%. Per Brian Goldner, “the threat and enactment of tariffs reduced revenues in the third quarter and increased expenses to deliver product to retail.” I feel that management was remiss when they forecasted their ability to circumvent the tariffs and then used the tariffs as a scapegoat to justify the company missing its numbers on both top-line revenue and bottom-line profit. Now the backdrop has changed in Hasbro’s favor with the phase one trade deal with China being reached and of course, the new internet sensation Baby Yoda.

The company is in a solid position moving into the holiday season, historically their biggest quarter, with blockbusters and the holidays coming into the fold. Hasbro has its Disney toy licensing deal (Marvel, Star Wars and Disney Princess lines) that should have a strong showing with Frozen 2 and the new Star Wars film with Baby Yoda debuting in Q4. Hasbro Studios (Transformers’ Bumblebee, My Little Pony, Power Rangers), E-Sports (Dungeons and Dragons and Magic: The Gathering), its legacy games (Monopoly and Nerf) and acquisition of Entertainment One earlier this year places the company in a position of strength. Hasbro has a compelling future across its portfolio with many catalysts in the near and long-term time horizons.

Baby Yoda
Figure 1 – Baby Yoda making his appearance last month in The Mandalorian on Disney+

Phase One Trade Deal

The U.S. and China came to terms on a phase one trade deal, benefiting any company that sources and manufactures its products in China. Hasbro has already migrated some of its supply chain away from China as a risk mitigation strategy due to the trade tensions between the two nations. The phase one trade deal provides Hasbro with supply chain flexibility and additional time to make any necessary adjustments to its business model. The previous quarter Hasbro lost momentum and attempted to attribute this to the tariffs. Now, this tariff headwind has been removed for the time being, allowing Hasbro stock to appreciate on the news. Continue reading "Baby Yoda and Phase One Trade Deal Propels Hasbro" →