Imax, Cinemark shares could offer upside in 2024 despite challenges for movie theaters, Macquarie says

By James Rogers

Hollywood strikes and slower demand following the pandemic mean questions remain about 2024, analyst says

Movie-theater stocks may be facing a tough first-quarter domestic box office, but they could be set for upside later this year, according to Macquarie Equity Research.

"Theatrical stocks underperformed in '23 after a difficult '22 and remain 60% off of pre-pandemic levels, while questions remain for '24," Macquarie analyst Chad Beynon wrote in a note released Monday. "Unfortunately, the outlook for '24 has questions again, following Hollywood strikes and slower post-pandemic core demand."

He added: "We're taking a conservative approach towards our 2024 estimates, but believe there could be upside opportunities in [the second half of 2024]."

Related: AMC's share price is 'so frustrating,' and strikes have 'ruined' early 2024 box office, CEO says

U.S. box-office revenues for the fourth quarter of 2023 were $1.9 billion, according to Macquarie, slightly below the analyst firm's expectations for $2 billion. During the quarter, no movies generated more than $200 million and only four generated more than $100 million: "Taylor Swift: The Eras Tour," "The Hunger Games: The Ballad of Songbirds & Snakes," "Five Nights at Freddy's" and "Wonka," Benyon noted. "As a result, we believe there could be earnings misses for the group, however this is now well understood."

The highest-grossing concert movie of all time, "Taylor Swift: The Eras Tour," opened in October and had brought in about $180 million at the U.S. box office and around $260 million worldwide by early January, according to Statista.

Beyond the first quarter of 2024, domestic box-office revenues should improve, with Macquarie expecting around 25 $100 million-plus movies in 2024 - with one of them, "Deadpool 3," expected to bring in over $300 million. Set against this backdrop, Imax Corp. (IMAX) remains Macquarie's top pick, followed by Cinemark Holdings Inc. (CNK), with the analyst firm citing the companies' "superior balance sheets," their management teams and their "inexpensive" valuations.

Related: AMC shares hit another record-low close, extending losing streak to five days

"We believe [Cinemark] and {Imax] remain inexpensive off of our revised 'base' case estimates, certainly with upside if business improves, albeit most likely in [the second half of 2024]," Beynon said in the note.

Macquarie maintained its outperform rating for Imax but lowered its price target to $24 from $25. The analyst firm also maintained its outperform rating for Cinemark but lowered its price target to $20 from $21.

Beynon also noted that movie-theater chain and original meme stock AMC Entertainment Holdings Inc. (AMC) recently completed a $350 million equity offering. "While the stock remains less risky given the balance sheet improvement, we need to see a margin improvement (800 [basis point] gap to [Cinemark]) before we recommend," he said.

Related: Cinemark well-positioned for postpandemic growth and could bring back dividend, one analyst says

Macquarie maintained its underperform rating for AMC and lowered its price target to $5 from $8.

On Sunday, AMC CEO Adam Aron took to X, formerly Twitter, to describe the recent decline in the company's share price as "so frustrating," adding that the 2023 actors and writers strikes had "ruined the early 2024 box office."

Last week, Aron described the recent slide in AMC's share price as "painful" and pointed to the lingering impact of the COVID-19 pandemic on the movie-theater industry.

Related: AMC's stock falls more than 5% after company completes $350 million equity offering

Macquarie's Beynon also highlighted cinema owner Reading International Inc. (RDI). "[Reading] remains a micro-cap theatre/real estate story that has been crunched by declining industry trends," he wrote. "The company sold several non-core assets to pay down debt and the balance sheet is in a better position. That said, we believe there is still hidden value if [Reading] can execute." Macquarie maintained its neutral rating and $2.50 price target for Reading International.

-James Rogers

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01-29-24 1549ET

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