Movie theater chains weathered COVID-19 and now face an economic downturn

After an almost two-year hiatus, major movie theater chains are finally starting to see a surge in box office receipts as the summer blockbuster season draws to a close. But the rapid recovery in earnings comes amid concerns about a broader economic slowdown, raising questions on Wall Street about how quickly they can recover.

Ahead of the second quarter earnings season, B. Riley Securities analyst Eric Wold cut his 2022 and 2023 domestic box office revenue forecasts “to provide a more realistic recovery rating and additional conservatism built into our models.” Vold cited “domestic box office performance in the first half of the year, which was lower than we originally projected, for the second quarter our estimates have been reduced accordingly.”

Vold reiterated his “buy” rating at cinemark Holdings, Imax Corp. and stock in The Marcus Corp., maintaining a “neutral” rating on AMC theaters and the theatrical advertising network National CineMedia. (AMC Theaters, the largest chain, reported second-quarter earnings on Aug.

“While the list of upcoming films becomes increasingly tight in Q3, we believe the underlying patterns of demand for high-quality films and broader demographic gains bode well for the industry in Q4 and 2023,” he said. B. Riley. argued the analyst. “We continue to believe the group is positioned to return to valuation multiples in the pre-pandemic range as box office trends return to levels above $10 billion in 2023.”

Wold is now forecasting a 28% drop in 2022 box office receipts from 2019 levels, down from the previous forecast of 20%. By 2023, it now forecasts a decline of 7 percent, up from the previous 3 percent. “However, we continue to expect major exhibitors to outperform the sector to a similar degree as in recent quarters,” the analyst wrote.

Wall Street analysts are bullish on equities rising despite economic concerns. “With the risk of a domestic recession increasing in recent months, we continue to believe that the exhibition group can be seen as a safe haven in the consumer and entertainment segments (and should not experience the same pressure from the stock market as other sectors). discretionary use). ),” said Wold. .

provided Top Gun: Maverick s jurassic world domainMay and June saw box office gains, with $1.114 billion last month, up from $409.2 million in the same month in 2021, but still below the 2019 Pandemic.

Meanwhile, MKM Partners analyst Eric Handler downgraded Imax in a report on Friday. In it, he lowered his financial estimates for the company’s second quarter, “as a result of Imax closing most of its circuit in China in the second quarter” due to the resurgence of COVID-19. Handler now projects quarterly revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $73 million (+44% Q2 2021, -30% Q2 2019) and 25 million (+185 ). percent, -40 percent from Q2 2019 of $85 million and $33 million, respectively.

However, in his opinion, “sentiment towards Imex remains very bearish and does not reflect an attractive, dual-stream, global, asset-light, content-focused, highly successful business model.” Handler explained, “While we are lowering our Q2 estimates as a result of the longer-than-expected lockdown in China, this issue was temporary (we moved install revenue to Q3 and Q4), nearly all Imax displays. Nationwide has reopened and the volume and quality of content is expected to improve as the launch of the main title has been delayed.”

Their conclusion: “We think moviegoing will return to China relatively quickly (as it did when the country first opened in late 2020, early 2021) and will provide good tailwind for the second half of this year.”

Speaking of blockbusters, the last quarter of 2022 in particular has “some mega-hit potential,” the analyst suggested. “We see the third quarter benefiting from a strong July schedule that includes Thor: love and thunder (7/8) and No (7/22), as well as several high-profile local language titles in China, including mozart in space (7/15), which was filmed in part with Imax cameras.”

Handler added: “Box office receipts are expected to be higher in the fourth quarter, where we expect Imax revenues to exceed $300 million for the first time since the second quarter of 2019. This reinforces that forecast. black adam (10/21), Black Panther: Wakanda Forever (11/11) and Avatar: The Way of Water (12/16)”.

It maintains a “buy” rating on Imax stocks with a target price of $23.