Disney's July Release for 'Mulan' Seen as Bullish for Theater Stocks

Disney claimed 40% of the domestic box office last year, so its schedule rearrangement should help set the tone for the industry, analyst Eric Wold said.

Disney claimed 40% of the domestic box office last year, so its schedule rearrangement should help set the tone for the industry, analyst Eric Wold said.

With theaters across the nation closed as coronavirus distancing keeps people at home, movie studios have had to delay the theatrical releases of a host of films. While that isn’t likely to change soon, and the industry might have to confront a slow rebound in attendance after the mandates are lifted, B Riley analyst Eric Wold remains optimistic over the long term.

Hollywood studios are known for carefully planned release cycles to avoid fierce box-office competition, and the pandemic has completely disrupted that plan. Some worry this could be setting up a glut of movie releases, pitting big titles against each other during the same release window.

Wold said in a note on Monday that is unlikely. He said studios would be flexible in creating an evened-out schedule in the coming years and pointed to the updates on releases from Walt Disney (ticker: DIS) announced last Friday.

Like many of its rivals, Disney had said in March that the release of several titles would be delayed, but didn’t set new release dates. Now it has said that Soul, the animated fantasy comedy produced by Disney and Pixar Animation Studios, will be the first to the screen on June 19, assuming cinemas are allowed to reopen at that time.

Mulan is slated to open on July 24 and Marvel Studios’ Black Widow will arrive in theaters on Nov. 6. The Eternals has been moved to Feb. 12, 2021, and Jungle Cruise to July 30, 2021.

There are 15 Disney films on tap for the second half of 2020, 20 films for 2021, and 19 films for 2022. The schedule for the next three years is starting to even out, Wold wrote, noting that more films are being dropped from the schedule because of production delays caused by the pandemic.

The plan could change depending on the coronavirus development, but “the fact that Disney is at least willing to consider a late-July release date for its $200 million-production-cost Mulan indicates the studio’s optimism that attendance patterns will be close to normal by then,” Wold wrote.

The sci-fi film Artemis Fowl, on the other hand, will skip theaters and makes its debut on the company’s online streaming service Disney+. Wold thinks the move was made because the studio thinks the lower-budget film would likely underperform at the box office given an increasingly crowded slate in the second half of 2020.

Disney claimed 40% of the domestic box office last year, so its schedule rearrangement should help set the tone for the industry, Wold said. “We believe some of the calendaring decisions made by Disney should help to drive some optimism with investors that the studios will work to build a solid film slate that both inspires consumers to return to the theater and avoids an overly crowded calendar that adversely impacts box office revenues.”

With expectations of theater reopening in the second half of the year, Wold upgraded movie theater chain Cinemark Holdings (CNK) from Neutral to Buy with a target price of $14, about 67% up from Friday’s close. Should the dividend remain intact, he expects total return to be as high as 84%.

Cinemark is well-positioned to benefit from an industry restart with its strong cash-flow control, Wold noted. Management has delayed all planned capital spending and reduced a significant portion of operating expenses, including studio-film rent, utility bills and credit-card fees. It has also cut pay and furloughed employees. Even if the company has to pay full rent during the shutdown, its cash balance and credit facility would provide enough liquidity to last nearly nine months without revenue.

The company spends about $31 million each month on facility lease, accounting for nearly half of the assumed cash burn run-rate, according to Wold. If landlords are willing to defer or amend part of the rent, Cinemark’s cash runway could be extended. “We would be surprised if landlords were not flexible with their anchor tenants in terms of rent deferrals or amortization to ensure the theaters do not close for good,” he said.

Wold also reiterated the Buy rating on IMAX (IMAX) with a target price of $19, up about 104% from Friday’s close. Management said the company could survive for more than two years without revenue. Its asset-light business model, which relies on intellectual-property licensing, should also accelerate its revenue and earnings recovery sooner than peers when theaters begin reopening.

Through Friday, Cinemark and IMAX shares were down 75.2% and 54.3%, respectively, year to date, compared with a 23% loss for the S&P 500.

Wold thinks this is an attractive entry point for investors to gain from the theater industry’s recovery later this year. He didn’t issue an opinion on Disney.

On Monday, Cinemark stock jumped 10.9% to $9.28 and IMAX shares rose 6.3% to $9.92, on a day when the Dow Jones Industrial Average climbed 7.7%.

Write to Evie Liu at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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