Cinemark On A Financial Upswing, But Can It Navigate Hollywood's Uncertain Terrain? Analyst Weighs In

Roth MKM analyst Eric Handler maintained a Neutral rating on the shares of Cinemark Holdings Inc CNK with a $20 price target.

The analyst said box office results have exceeded projections in all three quarters of this year, which has put Cinemark on a path for positive free cash flow and a significantly strengthened balance sheet.

However, the analyst is concerned about the ongoing Hollywood labor issues, which could stall the momentum.

Although the analyst increased Q3 FY23 revenue outlook to $850 million from $823 million, the adjusted EBITDA forecast has been moved only nominally to $173 million from $172 million.

The lack of a larger profit revision is a reflection of higher cost assumptions for staffing and utilities, noted the analyst.

For Q3, the analyst estimated FCF of $50 million and cash rising to $808 million, up from $758 million in Q2 FY23, and up from $632 million in last year's same quarter. 

The analyst has projected North American box office growth for next year of 6.5% to $9.6 billion, but is concerned about Hollywood's lengthy work stoppage limiting visibility. 

The start of the summer season, May 3, could be the first major hole as a few months back, Walt Disney Company DIS removed Deadpool 3 from its presentations, noted the analyst.

Also, the animated feature Spider-Man: Beyond the SpiderVerse has been completely moved out of 2024 and now has a TBD date, added the analyst.

As was the case coming out of COVID, FX studios will likely be bombarded with orders when work is resumed, thereby creating a potentially significant bottleneck, said the analyst.

Also Read: Taylor Swift's Concert Film & Beyoncé's Documentary: How They're Setting Cinemark Up for A Breakout Q4, Says Analyst

Price Action: CNK shares are trading higher by 1.38% at $16.55 on the last check Tuesday.