Analysts at Wedbush are not romanticizing the relationship between AMC Entertainment Inc (NYSE:AMC), and its retail shareholders. In fact, Wedbush believes that the steadfast retail crowd will continue to prop up shares of AMC.

But that's not enough for Wedbush, which is calling for a 48% downside on shares of AMC from here, citing a myriad of risks.

The AMC Analyst: Wedbush's Alicia Reese reiterated an Underperform rating on the company, but maintained its $2 price target on the stock.

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"AMC has the cash to continue operating through an improved theatrical environment in 2023 — however, AMC is still grappling with its massive debt balance, while it seeks ways to bolster confidence among its retail shareholders by way of new business ventures and screen acquisitions," Reese wrote in a note to investors Thursday.

The Adam Aron-led company issued two press releases. On Dec. 19, he announced that AMC would reduce its debt by $35.95 million in total, at a significant discount (AMC paid roughly $14 million for the $36 million debt reduction).

The second announcement, issued on Dec. 22, included three shareholder proposals and said that AMC raised $110 million of new equity capital through the sale of its AMC Entertainment Hldg Pref Equity Units (NYSE:APE).

• A proposal to hold a shareholder meeting for AMC and APE shareholders to vote on converting all outstanding APE shares to AMC shares.
• A proposal to affect a reverse stock split of AMC common shares after the proposed APE conversion, at a 1:10 ratio.
• A proposal to authorize ordinary share capital such that it would be able to issue common equity as it has had with APE share.

Wedbush's analysts expect shareholders to allow the first two proposals but says the third proposal is less likely to pass if left to its retail shareholders.

"Without making any changes to our valuation parameters, the APE share conversion and reverse stock split would push our price target to $40," Reese told investors. "If we compare this to January 1, 2020, where the share count was similar and net debt was $450 million less, it becomes even clearer how overpriced shares of AMC are at current levels."

AMC would reach a price target of $18 if given the benefit of the best-case (ex-MEME-stock) scenario, which includes normalized adjusted EBITDA in 2024 or 2025 and a peak pre-MEME-stock historical EV-to-EBITDA multiple of 9x.

This suggests that if AMC keeps losing its retail shareholder base, shares of the company might still lose up to two-thirds of their current value.

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