Exhibition stocks decline

Regal, Cinemark downgraded to 'neutral' on weak Q2 trends

NEW YORK -- Exhibition stocks were on the decline Tuesday amid concerns over sluggish second-quarter boxoffice trends and an analyst downgrade.

Janney Montgomery Scott analyst Tony Wible downgraded shares of Regal Entertainment and Cinemark to "neutral," and the companies' stocks along with another publicly traded peer took a hit.

Exhibitor stocks will "remain range-bound in light of the weaker second-quarter (boxoffice) performance, disappointing tent pole performance and the emerging threat from an early VOD window," he argued.

"We continue to see value in the theater operators as they benefit from a strong 2011 film slate and the emerging digital/3D benefits," Wible added though.

He lowered his price targets on Cinemark and Regal to $20 and $16, respectively.

Regal's stock fell 8.1% to $13.84. Cinemark shares closed down 7/4% at $14.80. Also, Carmike Cinemas shares fell 8.7% to $10.14. Imax shares, which have done particularly well over the past year or so, declined only 1.3% to $16.73 amid a broader market drop.

Wible spent some time lamenting weaker second-quarter boxoffice trends, which are pacing down 3.7% after what he called "a string of disappointing results on major tent pole films. He reduced his second-quarter boxoffice projection.

As releases that have missed his boxoffice expectations, Wible mentioned "Why did I Get Married Too," "Kick-Ass," "Robin Hood," "Shrek Forever After," "A Nightmare on Elm Street," "Prince of Persia" and even "Clash of the Titans" and "Iron Man 2."

In aggregate, he said boxoffice trends are running  behind his original forecast driven by the 16 tent pole releases of the second quarter. Overall, they are running $817 million behind his original projection, or about $51 million on average for each major film.

Wible also discussed the emerging threat of an early VOD release window as overhanging theater operators. The FCC recently decided to allow for selective output controls on TV set-top-boxes that would allow studios to offer releases directly to homes in an early VOD window. This threat is likely to pressure exhibition stocks, he said.

"We believe over half of the studios will explore the introduction of a window that could release films either simultaneous with theatrical (less likely) or ahead of the DVD window (more likely)," the analyst said.

However, he expects less initial impact than some fear. "They will face pushback from theater operators and retailers, while piracy and pay TV cannibalization risk pose legitimate challenges that may mitigate early VOD adoption," he said.

Wible also argued that "there is still no evidence that consumers will choose to pay a premium to watch newer release content in home as opposed to paying for cheaper VODs in the DVD window."
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