Despite the gloomy perception surrounding theatres and cinema-related businesses in the post-COVID era, National CineMedia (NCMI) is well-positioned to ride the recovery in cinema attendance. Despite the challenges and risks associated with its outdated model, primarily influenced by the rise of online streaming, NCMI continues to attract audiences in cinemas with its advertising content, driving Q2 revenue to levels that have exceeded expectations.
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The stock is up over 51% year-to-date. It trades at a discount to industry peers, offering an intriguing opportunity for value investors seeking exposure to the resurgent cinema business.
National CineMedia Is Primed for Market Rebound
National CineMedia is the largest cinema advertising network in the U.S. With over 18,200 screens in more than 1,400 theaters, the company’s extensive reach spans 195 Designated Market Areas, including all of the top 50.
The COVID-19 pandemic greatly affected industry revenues as theater attendance dropped drastically. The company had to lean on loans to compensate for the revenue losses and filed for bankruptcy last year due to an overwhelming debt burden. In response to these struggles, National CineMedia underwent a significant transformation, restructuring its operations, clearing its debt, and ultimately replacing its board of directors.
As a leaner, debt-free company, it is strategically poised to leverage the gradual return of attendance levels at cinemas in the post-pandemic era.
Cinema ticket revenue is expected to grow at a compound annual growth rate (CAGR) of 4.66%, resulting in a projected market volume of $3.42bn by 2028. Theatergoers are expected to grow from 46.3 million to 53.7 million by 2028.
National CineMedia’s Financial Results & Outlook
The company recently released its Q2 2024 financial results. Revenue was $54.7 million, surpassing analysts’ expectations of $49.99 million, marking a 15.1% decline year-over-year. Operating losses climbed to $9.3 million from $4.9 million. The net loss for this period was $8.7 million, translating to earnings per share (EPS) of -$0.09, which missed consensus expectations of -$0.08.
Management has issued forward guidance, projecting a Q3 2024 total revenue between $56.0 million and $58.0 million, a decrease from the Q3 2023 total revenue of $69.6 million. Adjusted OIBDA for Q3 2024 is projected to range from $6.0 million to $8.0 million, down from $11.3 million in Q3 2023.
What Is the Price Target for NCMI Stock?
The stock has been highly volatile, with a beta of 2.34, climbing over 113% in the past year. It trades at the high end of its 52-week price range of $2.75 – $6.12 and shows positive price momentum, trading above the 20-day (5.40) and 50-day (5.08) moving averages. The shares are undervalued based on a P/B ratio of 1.51x, which compares favorably to the Advertising Agencies industry average of 2.23x.
Analysts following the company have been cautiously optimistic about the stock. Wedbush analyst Alicia Reese recently raised the share price target from $5.50 to $6 while maintaining a Neutral rating. She noted the company is well-positioned in a recovering ad delivery ecosystem and can capture expanding margins over the next few years.
National CineMedia is rated a Moderate Buy based on the recommendations and price targets recently assigned by three analysts. The average price target for NCMI stock is $6.75, representing a potential 7.31% upside from current levels.
Bottom Line on NCMI
Despite a volatile period due to the pandemic, National CineMedia has undergone a significant transformation. The company now stands as a leaner, debt-free entity ready to leverage the anticipated rebound of cinema attendance in the post-COVID era. The company’s recent quarterly financial results exceeded expectations, demonstrating its robust capacity for generating revenue despite challenging circumstances. It trades at a discount, offering a potentially attractive opportunity for value investors.
