MW Cinemark at 'inflection point,' well-placed for postpandemic recovery, Benchmark says

By James Rogers

Cinemark reported better-than-expected third-quarter results this week

Cinemark Holdings Inc.'s better-than-expected third-quarter results this week bode well for the movie-theater chain amid a broader industry rebound, analysts say.

"The company delivered a strong [third quarter], exceeding revenue and profitability expectations," Benchmark analyst Mike Hickey wrote in a note released Friday. "We see Cinemark at an inflection point, with anticipated content volume growth and presumed quality improvements over the coming years as the primary catalyst."

He added: "As attendance nears pre-pandemic levels, we expect significant margin expansion, fueled by an optimized cost structure and a durable shift toward higher-margin concession sales."

Related: AMC and Cinemark yet to reclaim 'pre-COVID glory' as foot traffic still well below pre-pandemic levels, research finds

Benchmark in particular highlighted Cinemark's $(CNK)$ record third-quarter revenue of $922 million and its average ticket price, which rose 6.3% to $7.62. Cinemark's concession revenue per patron increased 10.7% to a record $6.08, Benchmark noted.

The analyst firm raised its price target to $35 and reiterated its buy rating for Cinemark's stock.

In its earnings release, Cinemark noted that the third quarter brought the highest quarterly box office since the pandemic and was within 4% of the third quarter of 2019.

Related: Cinemark's earnings top estimates with boost from success of 'Inside Out 2'

The postpandemic recovery has been closely monitored at Cinemark, as well as at rivals AMC Entertainment Holdings Inc. $(AMC)$ and Regal Cinemas, as they look to put pandemic-era disruption behind them.

Cinemark's recovery was postponed in the fourth quarter of 2023 because of last year's writers and actors strikes, which affected results through June 2024, according to analyst firm Wedbush. In a note released Friday, Wedbush analyst Alicia Reese said that Cinemark's third-quarter box office ended up 1% year over year, despite the difficult comparison with last year's "Barbie" summer blockbuster. "Cinemark held on to its postpandemic market share gains, and continues to build upon this in 2024 as the film mix remains favorable," she wrote.

However, Wedbush downgraded Cinemark to neutral. "We view any upcoming pullbacks as buying opportunities as Cinemark will likely reinstate its dividend in [the first quarter], repay debt over the coming year, and locate accretive M&A to fold into its expanding [earnings before interest, taxes, depreciation and amortization]," Reese wrote. Wedbush maintained its $32 price target for Cinemark.

Related: AMC's revenue, Ebitda estimates raised by B. Riley, citing industry strength

Shares of Cinemark are down 0.8% Friday. The stock is up 109.5% in 2024, outpacing the S&P 500 index's SPX gain of 20.3%.

Cinemark is gaining share in a growing industry, Morgan Stanley said in a note released Friday. Morgan Stanley continues to see strong growth ahead for the North American box office, which should translate into growth in Ebitda and free cash flow, along with equity appreciation for Cinemark. Morgan Stanley has a $35 price target and an overweight rating for the movie-theater chain.

Of 11 analysts surveyed by FactSet, six have an overweight or buy rating, four have a hold rating and one has a sell rating for Cinemark.

Related: AMC shares climb as company shaves almost $153 million off debt load

Rival AMC is likely to provide more insight into postpandemic cinema recovery when it reports third-quarter results after market close on Nov. 6. Last quarter, AMC CEO Adam Aron said that "the box office has started its big upwards climb."

AMC shares are up 1.9% Friday. The stock is down 26.9% in 2024.

-James Rogers

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November 01, 2024 15:05 ET (19:05 GMT)

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