Yes, you can say "Amanda's out of town". Any noun or noun phrase may be part of a contraction. For example, "the king of England's about to die".
One of the comments above says that you can't apply contractions after words that end in a sibilant (s, sh, z). I find that I still make a compromise contraction, with a schwa before the contracted verb instead. Your mileage may vary depending on dialect. It's probably best to avoid contractions in those cases though.
You may also not want to use these contractions in formal writing, but it's perfectly fine in speech and informal writing.
Your concern about confusion with the possessive construction doesn't usually manifest. In the example sentence, "out of town" is a prepositional phrase that cannot be possessed. In many other circumstances, "is" is part of a verb phrase, so there is also generally no confusion there: "Amanda's coming to play". While you could say that "Amanda's coming" is a noun phrase, the rest of the sentence does not contain a verb, or at least one that can take "Amanda's coming" as a subject, so there's no ambiguity.
You can also use
'll (from "will"),
's (from "has") and
'd (from "had" or "would") with nouns and noun phrases:
- "Amanda'll be here in a few" ("Amanda will be here in a few")
- "Amanda's already come over" ("Amanda has already come over")
- "Amanda'd already eaten by the time we asked" ("Amanda had already eaten by the time we asked")
- "Amanda'd like to eat soon" ("Amanda would like to eat soon")
All of these additional options, except for
's sound to my ears particularly informal. Note that
'll is still pronounced as its own syllable: "uh-MAN-duh-ull".