Three cinema stocks reviewed by Roth

Going to the movies is still proving to be a tough sell these days, but the industry just posted the best quarter in the post-pandemic era, although numbers are still off from 2019 highs. In an entertainment industry report on Monday, Roth Capital Partners analyst Eric Handler reviewed the latest results and coming attractions from the cinema market and reiterated a “Buy” rating on one stock, IMAX, while giving “Neutral” and “Sell” ratings to two others.

No fireworks were on display in the industry second quarter numbers, where preliminary box office results were $2.680 billion, which was up 15.2 per cent year-over-year and matched Handler’s estimate at the same $2.68 billion.

“The pre-holiday weekend proved underwhelming with the Top Ten movies grossing $118 million, down 37 per cent year-over-year and down 15 per cent versus the same period in 2019,” Handler wrote.

The good news was that the Q2 was the industry’s best of the post-pandemic period, with June delivering the second-best post-pandemic month at $1.0 billion and trailing only July of last year at $1.13 billion.

At the same time, Handler noted a trend where revenue from beyond the Top Ten is looking scarce. The quarter saw Top Ten films averaging revenue of $215 million, up 2.5 per cent compared to the averages in the years 2015-19, but after that, revenue from the films ranked #11-20 and #21-30 was $30 million and $11 million, respectively, representing drops of 38 per cent and 52 per cent respectively compared to 2015-19 numbers.

“This data suggests moviegoers, in general, have interest in returning to theatres for top films with visuals and experiences that cannot be replicated at home,” Handler wrote. “In contrast, mid-level movies are having a tougher time, which could be a function of quality, but more likely, consumers are taking advantage of either shortened windows or are able to find acceptable substitutes from their SVOD services.”

Handler said franchises and horror movies are performing the best, while adult dramas and comedies are lagging.

Focusing on IMAX, Handler said the global box office for its network over the holiday weekend was roughly $15 million, with Indiana Jones and the Dial of Destiny leading the way with $11 million worldwide. Handler said IMAX should have better days ahead with the release of major pictures Mission: Impossible – Dead Reckoning Part 1 on July 12 and Oppenheimer on July 21, along with China local language fantasy movie Creation of the Gods I: Kingdom of Storms on July 20.

“Despite the weaker than anticipated 2Q results, we remain pleased with how blockbuster films are generally performing across IMAX’s global network, its rising market share, and the recovery of the Chinese box office (+153 per cent year-over-year in 2Q23 and +116 per cent year-to-date). In addition, the resurgence of demand for IMAX system installations by theatres has been a welcome sight,” he said.

Stock: IMAX (IMAX Stock Quote, Charts, News, Analysts, Financials NYSE:IMAX)

Roth Capital Rating: Buy

Roth Target Price: $26

Projected Return to Target: 53 per cent

Stock: AMC Entertainment (AMC Entertainment Stock Quote, Charts, News, Analysts, Financials NYSE:AMC)

Roth Capital Rating: Sell

Roth Target Price: $0.50

Projected Return to Target: -89 per cent

Stock: Cinemark (Cinemark Stock Quote, Charts, News, Analysts, Financials NYSE:CNK)

Roth Capital Rating: Neutral

Roth Target Price: $18

Projected Return to Target: 9 per cent