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AMC Tanks On Downgrade & Regulatory Concerns

Shares of AMC Entertainment AMC were down through afternoon trading on the back of a price downgrade and new, massive government regulations set to curtail AMC’s parent company.

RBC Capital Markets’ analyst Leo Kulp lowered his AMC price target from $38 to $30 per share. "We continue to rate the stock Outperform on the opportunities associated with the recent acquisitions,” Klup noted.

“However, we see more downside than upside to Q3 box office estimates at this point."

AMC has seen its stock price fall 9.47% through early afternoon trading. The stock touched its 52-week low on Monday.

Chinese Regulations

Still, the significant analyst downgrade might not be the biggest reason AMC plummeted on Monday. New reports that the Chinese government is set to prevent banks from lending money to Chinese multinational conglomerate Dalian Wanda could signal disaster for AMC.

Dalian Wanda, which owns AMC and many other companies outside of the entertainment world, has continuously bought up assets in recent years. The Chinese powerhouse has also set its sights on becoming an international entertainment giant – it bought U.S.-based Legendary Entertainment for $3.5 billion in 2016.

However, the Chinese government will now greatly regulate Dalian Wanda’s overseas dealings. Regulators began to prevent Chinese banks from funding most of the company’s overseas acquisitions. Reports state that Beijing is set to curb the firm’s aggressive string of offshore purchases.

The specific focus on Dalian Wanda was first announced in June and reportedly deals with six different foreign acquisitions – four of these were already completed. The move to slow down Dalian Wanda’s investments outside of China, some retroactively, comes as part of an official government effort to drastically slow down overseas investment.

Dalian Wanda will not be allowed to use cash made from its Chinese-based businesses to help its offshore assets. China is also set to make sure Dalian Wanda and others don’t roll foreign assets into Chinese-based holdings.

“Cross-border movement of funds is the background of this,” Keith Pogson, a senior partner at Ernst & Young, told the Wall Street Journal. Chinese Regulators “are sending a clear message to the market that they’re going to make it difficult for companies to finance overseas deals.”

Dalian Wanda reportedly violated Beijing's new 2016 overseas investment restrictions. Therefore, the government could possibly try to come down extremely hard on AMC’s parent company.

Current Outlook

AMC is a Zacks Rank #4 (Sell), and it scored an “F” grade for Momentum in our Style Score system. Continued negative earnings estimate revisions are a big reason for this “Sell” rating. The entertainment company’s stock price is down 40.94% year-to-date.

On top of the downgrade, the possibly devastating regulatory news, and its slipping stock price, movie theater companies fell as a whole on Monday.

Regal Entertainment RGC and Cinemark CNK both dipped around 1.5% in afternoon trading to hover just above their 52-week lows. Imax IMAX fell 4.30%.

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