What happened
Shares of Cinemark Holdings (NYSE: CNK), the nation's No. 2 movie theater chain, were climbing this week in anticipation of the company's earnings report Friday morning and as it got an analyst upgrade on Wednesday.
The stock also seemed to gain in tandem with AMC Entertainment, the meme stock and the largest movie theater operator in the world.
Cinemark actually fell on its fourth-quarter earnings report on Friday, but the stock was still up 9% for the week through 10 a.m. ET Friday morning, according to data from S&P Global Market Intelligence.
Image source: Getty Images.
So what
During the holiday-shortened week, Cinemark shares jumped 6.8% on Tuesday, though there was no company-specific news out that day.
On Wednesday, the stock climbed again as Credit Suisse raised its rating from underperform to neutral, arguing that the "soft" U.S. box office from the fourth quarter was now behind the company and that consensus estimates were more reasonable.
Credit Suisse also saw the return of Bob Iger as Disney CEO as a positive for the movie theater industry, as Iger has traditionally been supportive of theaters. The bank warned that box office growth beyond 2023 was likely to be "tepid" but saw Cinemark as fairly valued. It raised its price target from $9 to $12.
The stock continued to gain on Thursday, and on Friday morning, Cinemark reported fourth-quarter earnings, showing a pullback after a recovery from the pandemic earlier in the year.
Revenue in the quarter fell 10% to $599.7 million, missing estimates at $609.9 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also fell from $139.4 million to $73.5 million as the company increased spending in the quarter, anticipating a continued recovery.
On the bottom line, it reported a per-share loss of $0.82, compared with a profit of $0.05 per share in the quarter a year ago. The bottom-line result was also worse than the analyst consensus at a per-share loss of $0.21.
CEO Sean Gamble said, "We remain highly optimistic about the many opportunities that lie ahead for our company, and as our industry continues to recover, Cinemark is poised to excel on account of our advantaged financial position, industry-leading operating capabilities, and sensational team."
Now what
Cinemark didn't provide guidance for 2023, but investors seem optimistic that the company can get back to growth this year, as analysts are forecasting another 13% increase in revenue.
The movie theater industry is at a pivotal point, as major Hollywood studios now have their own streaming services. However, as they search for profitability, maintaining the "window" of exclusivity for theaters seems to make sense.
If Cinemark can control costs and deliver EBITDA profitability, the entertainment stock should have some upside from here.
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Jeremy Bowman has positions in Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
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