Goldman Sachs Analyst Downgrades IMAX And Cinemark: What You Need To Know

Goldman Sachs Vice President of Global Investment Research Michael Ng downgraded two major film exhibitors, Imax Corp IMAX and Cinemark Holdings, Inc. CNK, in a newly published analysis.

The State of Film Exhibition: Ng stated Goldman Sachs’ 2022 U.S. box office forecast represents 73% of the pre-pandemic 2019 levels, adding that theater attendance had already been declining before the pandemic took root, dropping “at a 1.4% CAGR from the 2002 attendance peak to 2019.”

Ng also speculated a sudden surge in new theatrical releases "will lead to cannibalization and consumer fatigue 2021/22 box office should benefit from a robust, though crowded, film slate.”

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The Case Against IMAX: Ng downgraded IMAX from Neutral to Sell and lowered the 12-month target price from $19.60 to $18.60.

“Relative to the rest of our coverage universe (Internet, Video Games, Toys), where we have 11% upside to our 12-month price targets on average, we have 14% downside for IMAX,” Ng wrote.

Ng acknowledged IMAX is different from its competitors due to its wider international footprint, but he stressed that doesn't shield it from problems facing the industry.

Ng defined Goldman Sachs’ forecast on IMAX’s 2022 and 2023 EBITDA at $91 million and $98 million, which is 29% and 32% below the respective consensus levels of $128 million and $144 million, and “in our view reflects our more cautious view on domestic box office.”

The Case Against Cinemark: Ng downgraded Cinemark from Neutral to Sell and lowered the 12-month target price from $21 to $19.

“The reduction in our target multiple reflects our more cautious view on the domestic box office recovery, where CNK is primarily exposed,” he wrote. “We increase our 2021E and 2023E EBITDA slightly (2% and 3%, respectively) on better opex. Our 2022E EBITDA is largely unchanged.”

Still, he cited several key upside risks that could work in Cinemark’s favor, including a stronger than expected increase in theatrical attendance and increased ticket and concession prices.

And while Cinemark has not dropped any overt hints of an acquisition hunger, Ng suggested it “could execute favorable M&A.”

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(An IMAX theater in Spain, courtesy of FrostedMarksman / Wikimedia Commons.)