B. Riley’s veteran exposure analyst Eric Wold gave Cinemark stock a big boost, so to speak, upgrading it to “buy” from “neutral” and doubling its price target.
In a note to clients, Wold said he hosted a ‘fireside chat’ with the management of the Grand Theater Tour earlier this week. Despite rampant Covid-19 infection rates across the country, which continue to keep a lid on major markets like Los Angeles and New York, Wold believes Cinemark is well positioned during and after the pandemic. He increased his 12-month price target to $ 28 from $ 14. Shares of the company surged in the first few minutes of trading this morning, but have since settled into the breakeven point at around $ 19. This is the same range they traded in last June, when the first wave of the virus receded and offered a silver lining for the summer 2020 season.
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“We emerged from our discussion more and more confident in the steps management has taken over the past year to not only keep Cinemark on track financially during the uncertainty, but also to position the company so that on the other hand, it is emerging in a stronger position, both in terms of potential market share gains and margin expansion, ”Wold wrote. “With that, we are ready to view our new 2023 estimates as a return to the levels we previously projected for 2020/2021 before the pandemic.”
Cinemark’s scaled-back theatrical showcase deal with Universal sets a precedent that will be followed by other studios, the company’s brass predicts. Management “noted an expectation that the Universal Agreement will be net operations neutral (with additional savings covering potential PVOD cannibalization), but with upside potential,” Wold said. WarnerMedia’s decision to put the entire Warner Bros. 2021 slate on HBO Max at the same time it hits theaters has sparked a backlash from the industry. But Wold said Cinemark always assesses the terms of each film’s engagement and won’t reserve any that don’t offer reasonable savings. The company took a few weeks to confirm Wonder Woman 1984 reservations after the studio’s day and date was announced, Wold noted.
News last fall of effective vaccines that hit the market by the end of 2020 prompted a rebound in exhibition stocks after a long period of slump. However, “this was only the first step in the recovery of the action,” said Wold, “and was more of a rally of relief around the elimination of cash and ‘going out of business’ issues. We are now seeing an increasingly attractive setup for the next stage of the Cinemark share rally as investors look to 2022/2023 and a return to normal for the exhibition industry.
CEO Mark Zoradi and his management team told Wold the first quarter of 2021 will be ‘difficult’ due to slower-than-expected vaccine rollouts and a pallet of light films as studios keep their powder dried. They see a “modest” recovery in the second quarter and “stronger” third and fourth quarters as theaters and the economy in general begin to emerge from the pandemic.
Wold said he walked away from the discussion with Cinemark convinced that “the evidence showing that cinema habits would return.” The circuit’s management team noted international highlights such as The eight hundred generating $ 460 million at the box office in China and Demon Slayer becoming the first title of all time in Japan, with $ 335 million. They also noted that Australia, generally the 10th largest cinema market in the world, has become the second largest territory for Wonder Woman 1984, in part because HBO Max does not operate there.
Other strengths for Cinemark, according to Wold, are its strong track record relative to other leading circuits as well as its position as a first-mover in the watch party offering, a popular draw that is expected to continue after the launch. pandemic.