Movie Theater Stocks Tumble Following Bearish Comments From A Credit Suisse Analyst

Fewer people are going to movie theaters, and Credit Suisse analyst Omar Sheikh is taking notice.

Sheikh now has issued Underperform ratings on Cinemark Holdings, Inc. CNK, AMC Entertainment Holdings Inc AMC, Regal Entertainment Corp RGC and a Neutral rating on IMAX Corp (USA) IMAX.

Specific Ratings And Price Targets

• Cinemark: Downgraded to Underperform; lowered price target from $38 to $34.
• AMC: Reiterated Underperform; lowered price target from $26 to $20.
• Regal Entertainment: Reiterated Underperform; lowered price target from $19 to $17.
• IMAX: Neutral; lowered price target from $33 to $26.

Box Office Sales Are Trending In The Wrong Direction

Sheikh highlighted weak box office sales, on track to decline 2 percent year over year, as a primary reason behind his bearish ratings.

“We continue to forecast zero growth in US box office revenues in 2017 (vs consensus 2–4-percent growth), but highlight that with Q3 likely to be down 15 percent (tough comp against Secret Life of Pets), Q4 box office will have to be up 15 percent y/y to make our numbers,” he noted.

Premium Video On Demand Rentals May Not Be A Great Idea

Additionally, while theaters are pushing for Video On Demand rentals to start in 2017, Sheikh does not see how this would not reduce the profitability of the industry.

Specifically, he stated, “the ‘average’ $100 million movie attracts 2.6 million theatre-goers in weeks 4–13, and assuming 25 percent of attendees in those weeks (6 percent of total attendees) switch to premium VOD, incremental demand from 1m people would be needed for the window to be accretive for exhibitors – this looks challenging.”

Overall, he sees very few growth catalysts ahead in the struggling movie theater industry, even with a potentially stronger upcoming lineup of movies. Cinemark, AMC, Regal Entertainment and IMAX were all trading down during Thursday’s trading session.