Cinemark Holdings Inc. is well-positioned for growth as the movie-theater chain recovers from the disruption of the COVID-19 pandemic, according to Benchmark analyst Mike Hickey.
The analyst pointed to the company’s third-quarter earnings, which blew past analysts’ estimates Friday. “Driven by a rebound in box office sales and growing market share, these results reflect [Cinemark’s] solid post-pandemic recovery and potential for continued growth,” he wrote. “Our outlook on [Cinemark’s] growth trajectory remains upbeat, with the domestic box office poised for a market recovery of $3 billion, implying growth upwards of 30% in the coming years as film product volume increases.”
Set against this backdrop, Benchmark maintained its buy rating for Cinemark
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“With significant strides in balance sheet improvement and net debt leverage now sitting within their desired range, the outlook for financial stability is promising,” wrote Hickey. “We foresee the possibility of a dividend reinstatement in 2024, buoyed by robust cash flow projections. Moreover, the current valuation of [Cinemark] presents a discount compared to historical norms, which we believe will align more closely with past metrics as the company progresses further along its recovery path.”
Related: The ‘Barbenheimer’ buzz may be over, but consumer enthusiasm for movies is still strong, says Cinemark CEO
Cinemark has not paid a dividend since 2020. The company’s shares fell 0.2% in premarket trades Monday after ending Friday’s session down 2.4%.
Despite Cinemark’s strong third-quarter performance, CEO Sean Gamble weighed the potential impact of Hollywood strike action on the volume of film releases in 2024 during a conference call to discuss the results.
“Management noted the incremental challenge of gauging 2024 industry revenue given the ongoing SAG-AFTRA strike, and expectations for some reshuffle of the calendar once a resolution is reached,” JPMorgan analyst David Karnovsky wrote in a note released Monday.
Related: AMC’s stock climbs after rival Cinemark’s third-quarter earnings beat
“[Cinemark] indicated a conservative approach to capital allocation until better insight is gained on the strike impact,” Karnovsky added. “Looking longer-term, the company continues to express confidence in a recovery in film supply, as legacy studios return to normalized volume and Apple and Amazon ramp production.”
JPMorgan maintained its neutral rating for Cinemark. Of 11 analysts surveyed by FactSet, six have a buy rating, four have a hold rating and one has a sell rating for Cinemark.
Underlining the impact of the SAG-AFTRA strike, Warner Bros.
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and Legendary Pictures’ eagerly anticipated “Dune: Part Two” was supposed to open this weekend, but the opening has been pushed to March 2024, the Associated Press reports.
Related: Weekend box office is quiet, with a ‘Dune: Part Two’-size hole
Cinemark shares have risen 89.8% in 2023, outpacing the S&P 500 index’s
SPX
gain of 13.5%.
Shares of rival AMC Entertainment Holdings Inc.
AMC,
ended Friday’s session up 2.2% in the wake of Cinemark’s results, outpacing the S&P 500’s gain of 0.9%. The movie-theater chain and meme-stock darling reports third-quarter results after market close Wednesday. Analysts surveyed by FactSet are looking for sales of $1.26 billion and a loss of 25 cents a share.
AMC shares rose 2.9% in premarket trading Monday.
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