Movie theater company Cinemark Holdings Inc (NYSE:CNK) gets upgraded by an analyst as several box office releases are showing strength for the movie industry in recent weeks.
The Cinemark Analyst: Roth MKM analyst Eric Handler upgrades the rating on Cinemark from Neutral to Buy and raises the price target from $19 to $26.
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The Analyst Takeaways: Cinemark has several headwinds turning to "very attractive tailwinds," Handler says in the new investor note.
"Cinemark should prosper over the next 2.5 years," Handler said.
The analyst said Cinemark's strength can be shown with box office improvement, debt reduction plans, and a reintroduction of capital returns.
Handler calls Cinemark's valuation attractive, with the company trading at under 6x estimated 2025 EBITDA and a 10% free cash flow yield.
"We are increasingly optimistic about upcoming box office releases, especially the big 'mega-franchises' slated in 2025/2026."
The analyst said second quarter box office is expected to be down 30% year-over-year, but the third quarter could show a recovery with an estimated 6% decline year-over-year.
"Monthly revenue should turn positive in September and remain strong throughout 4Q, where we forecast 27% growth driven by blockbuster titles."
Handler said domestic box office could hit $9.4 billion in 2025, which would be up 15% from 2024 estimates and up 6% from 2023 figures.
The analyst cites upcoming blockbusters from franchises like Avatar, Jurassic World, Superman, Mission: Impossible, Tron, and Marvel coming in 2025 among the reasons to be excited.
Handler said Cinemark is likely to pay off debt with cash instead of letting debt convert to shares. The analyst said Cinemark could get its debt levels down to the same levels from the end of 2019.
"After the convertible debt is repaid and net leverage returns to pre-pandemic levels, we expect Cinemark will revisit its capital return strategy. In our opinion, a dividend reinstatement is the most likely path, but we would not rule out a simultaneous share buyback authorization."
The analyst said Cinemark could look to expand as the box office recovers and the capital return strategy is identified.
CNK Price Action: Cinemark shares are up 4% to $20.25 on Monday, versus a 52-week trading range of $13.19 to $20.40. Cinemark stock is up 22% over the last year.
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