(MENAFN- ValueWalk) With the start of blockbuster movie season, movie theater and cinema companies are hoping for the next so-called“Barbenheimer” to boost their profits. They got a ray of hope this week when Gower Street , a movie-industry analyst and consultant, predicted a better year for movies than was initially thought.
Gower Street upped its prediction for box office revenue to $32.3 billion from the original estimate of $31.5 billion. That $32.3 billion projection is still below the $33.9 billion in revenue made in 2023 and down from the pre-pandemic highs of $42.3 billion, according to the report. However, that upgrade is significant, given that last year's strike will result in significantly fewer theatrical releases.
It is more good news for one of the leading movie-theater chains in the U.S., Cinemark Holdings (NYSE:CNK), whose stock price is already up 37% year to date. Here's why.
Gaining market share
While all movie-theater chains have struggled since the pandemic, Cinemark, the third-largest chain in the country, may be the only one that has gained market share since then.
In 2023, the company generated $3.1 billion in revenue , a 25% increase over the previous year and within 7% of its pre-pandemic 2019 numbers. Cinemark notched an all-time high in sales of food & beverage per capita and saw concession revenue exceed 2019 by 3% - despite a 25% reduction in overall attendance.
On the bottom line, the company generated $191 million in net income last year, or $1.34 per share, up from a net loss of $268 million in 2022. Further, it boosted its free cash flow to $295 million from $25 million the previous year and had $849 million in cash, up from $674 million the previous year.
Cinemark's growth has been helped by not only its improved operational efficiency but its programs to enhance the customer experience. Last year, it grew its Movie Club subscriber base in the U.S. by 13%, bringing it to 1.2 million members and providing them with additional benefits to enhance their loyalty.
“During the year, Movie Club drove 24% of our domestic box office, and our data continues to demonstrate that the program stimulates increased movie-going frequency and food and beverage consumption,” President and CEO Sean Gamble said on the Q4 earnings call .
Cinemark has also invested in immersive, haptic seats in many of its theaters. The theaters with these seats, which provide movement, vibrations and textures that enhance the viewing experience, saw an 87% increase in revenue compared to 2019. Just this week, D-BOX Technologies , which makes the seats, announced that it was expanding its relationship with Cinemark, installing the seats in 50 more theaters on top of the 325 theaters that already have them.
Analyst gives Cinemark a double upgrade
In 2023, major movie releases were at 85% of pre-pandemic levels, but in 2024, that percentage is expected to drop to 75% compared to 2019 due to last year's strikes. With the numbers expected to move back up in 2025, this year was supposed to be a lull, but not for Cinemark - or at least not according to Wells Fargo analyst Omar Mejias . He upgraded Cinemark's price target to $23 per share and boosted it from a Sell to a Buy rating in a rare double upgrade. The $23-per-share target would represent about a 21% increase over the current price.
The analyst cited Cinemark's improved operational efficiency and expense management and its rising concession sales, each of which have helped it gain market share. Beyond that, Mejias was encouraged by a stronger-than-expected first three months of the year at the box office and what he believes is the best slate of movies since the pandemic over the last three months of the year.
Despite its 37% increase already this year, Cinemark looks reasonably valued with a price-to-earnings ratio of 14 and a price-to-sales ratio of 0.95. With its improved efficiency and cash flow, it has also been able to pay down some of the debt it built up after the pandemic, and it expects to continue to do so.
If movies are indeed back , as Mejias proclaimed in his research note, Cinemark might just be the best cinema stock to hold, as it is well-positioned to move higher.
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