According to Benchmark analyst Mike Hickey, Cinemark Holdings Inc. is in a favorable position for growth as it rebounds from the impact of the COVID-19 pandemic. The company’s third-quarter earnings, which exceeded analysts’ expectations, reflect a robust post-pandemic recovery and the potential for continued growth. Hickey’s outlook remains optimistic, with the domestic box office projected to experience a market recovery of $3 billion. This suggests a growth rate of over 30% in the coming years as the volume of film releases increases.
Strong Financial Outlook for Cinemark
In light of Cinemark’s positive performance, Benchmark has maintained its buy rating for the company. Hickey notes significant improvements in the balance sheet and net debt leverage, positioning Cinemark for financial stability. There is a possibility of dividend reinstatement in 2024, supported by robust cash flow projections. Furthermore, Cinemark’s current valuation presents a discount compared to historical norms, indicating that it may align more closely with past metrics as the company progresses along its recovery path.
Hollywood Strike Action Raises Concerns for Cinemark
While Cinemark’s third-quarter results were impressive, CEO Sean Gamble expressed caution regarding the potential impact of Hollywood strike action on the volume of film releases in 2024. Gamble discussed this concern during a conference call to review the company’s results.
Cinemark has not paid a dividend since 2020. The company’s shares experienced a slight decline of 0.2% in premarket trades on Monday after closing down 2.4% at the end of Friday’s session.
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Analysis of Cinemark’s Film Supply and the Impact of the SAG-AFTRA Strike
JPMorgan analyst, David Karnovsky, highlighted the challenges faced by Cinemark in predicting its 2024 industry revenue due to the ongoing SAG-AFTRA strike. He also mentioned the possibility of calendar reshuffling once the strike is resolved.
Cinemark has adopted a cautious approach to capital allocation until there is better clarity on the impact of the strike. However, the company remains optimistic about a recovery in film supply in the long term. They anticipate a return to normalized volume as legacy studios resume production and Apple and Amazon increase their film output.
Despite the obstacles posed by the strike, Cinemark is confident in its ability to navigate through this challenging period. JPMorgan maintained a neutral rating for Cinemark, while FactSet’s survey revealed that six analysts have a buy rating, four have a hold rating, and one has a sell rating for the company.
The SAG-AFTRA strike has had a significant impact on the film industry. For instance, Warner Bros. and Legendary Pictures’ highly anticipated “Dune: Part Two” was intended to debut this weekend but has been postponed until March 2024.
Cinemark’s shares have experienced significant growth in 2023, rising by 89.8%. This outperforms the S&P 500 index’s gain of 13.5%.
Rival company AMC Entertainment Holdings Inc.’s shares also saw an increase of 2.2% following the announcement of Cinemark’s results. However, AMC is set to release its third-quarter results after market close on Wednesday. Analysts predict sales of $1.26 billion and a loss of 25 cents per share.
Overall, despite the challenges brought about by the SAG-AFTRA strike, both Cinemark and AMC are demonstrating resilience and adapting to the evolving landscape of the film industry.
