Recession hitting the entertainment industry has negatively affected movie houses like Cinemark Holdings (NYSE:CNK). However, the company has demonstrated remarkable resilience, sustaining revenue and earnings growth while entertaining nearly 40 million guests globally in Q1, yielding almost $580 million in total revenue.
While the growth outlook remains uncertain and tied to industry recovery, Cinemark’s strategic initiatives and robust balance sheet position it positively in the face of potential volatility. The stock is up over 16.8% year-to-date, and the shares trade at a discount, making it an attractive option for investors looking for an alternative to AMC (NYSE:AMC) in the entertainment industry.
Cinemark’s Post-Pandemic Gains & Challenges
Cinemark Holdings is a prominent player in the motion picture exhibition industry, currently operating 501 theaters across 42 states and 13 countries in South and Central America. The pandemic hit the movie business hard, yet Cinemark made significant strides in the post-pandemic market, surpassing industry recovery domestically by 700 basis points and internationally by 600 basis points.
However, the company has faced a few setbacks. The first quarter of the North American industry box office experienced a moderate decline compared to 2023 due to protracted Hollywood strikes that disrupted film production.
Furthermore, the international segment saw a 9% decrease in attendance compared to the first quarter of 2023, with the film slate not resonating as effectively in the Latin American region. The company also faced adverse effects due to foreign currency devaluation, primarily with the Argentinian peso, which hurt international adjusted EBITDA. Despite strategic pricing advancements, escalated inflationary pressures on core concession items and a shift towards lower-margin products led to an increased concession cost rate.
Cinemark’s Recent Financial Results
The company recently reported financial results for Q1 2024. Total revenue for the quarter reached $579.2 million, exceeding consensus expectations for $560.38 million, though it marked a 5.2% decrease compared to the $610.7 million in Q1 2023. The reduction in revenue was driven by a 6.8% and 4.9% decrease in admissions and concession revenue, respectively, due to a 7.5% drop in patron attendance.
Despite this, the company reported a net income of $24.8 million, a considerable improvement on the $3.1 million loss of the same period in the previous year. The income included a $27.7 million tax benefit from releasing valuation allowances. This helped earnings per share (EPS) of $0.19 surpass analysts’ estimates by $0.36.
Cinemark concluded Q1 2024 with a promising financial position, boasting $789 million in cash and a reduced net leverage ratio of 2.8x, down from 4.7x in Q1 2023. Despite holding $2.4 billion in long-term debt, the company successfully retired $150 million of its COVID-related debt.
Is CNK Stock a Buy?
Cinemark Holdings is rated a Moderate Buy based on nine analysts’ cumulative ratings and price targets issued over the past three months. The average price target for CNK stock is $20.38, representing an upside of 23.74% from current levels.
Analysts following the company have divergent opinions, though most are constructive on the stock. For instance, Benchmark analyst Mike Hickey recently raised the price target on the shares from $22 to $23 and kept a Buy rating on the company. He cites Q1 results and anticipates that the box office will experience sequential growth.
The stock has been trending down the past three months, shedding 3.46%. Shares trade in the middle of the 52-week price range of $13.19-$20.40 and show negative price momentum, trading below the 20-day (17.42) and 50-day (17.48) moving averages. However, the shares trade at a discount, with a P/E ratio of 11.36x, significantly lower than the Entertainment industry average of 37.21x.
CNK in Conclusion
Cinemark presents an intriguing investment proposition amid ongoing industry challenges and a recent box office downturn. The company’s resilience in the face of adversity, evidenced by its revenue and earnings growth, bodes well for its ability to ride out the current industry downturn. The stock’s current discount solidifies its allure as an investment prospect. While there may be more volatility in the near future, Cinemark has emerged as a compelling option within the entertainment sector.
