Analyst Cuts 2020 Box Office Estimate, Says Cinemas Will Reopen in September "at the Earliest"

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MKM Partners' Eric Handler now expects a "near-70 percent decline compared to our prior view for a 55 percent-60 percent decrease" for the year.

U.S. cinemas are likely to reopen in September "at the earliest" given latest infection data for the novel coronavirus pandemic, MKM Partners analyst Eric Handler said in a Monday report, in which he reduced his 2020 box office estimate.

"The near-term outlook for exhibition related stocks remains extremely clouded given the uncertainty about when theaters will be able to reopen with new Hollywood content," he wrote. "We place a low likelihood of Tenet opening on Aug. 12 given a rising number of COVID-19 cases in key areas, such as California, Texas and Florida, along with the slowed reopening of the New York City economy. In our view, it would be surprising to see theaters able to reopen nationwide before September, at the earliest."

Handler reduced his 2020 box office forecast to a "near-70 percent decline compared to our prior view for a 55 percent-60 percent decrease," saying: "For the back half of the year we project third-quarter and fourth-quarter box office revenue could fall 90 percent and 50 percent, respectively, down from our previous forecast calling for a decline of 65 percent and 29 percent."

Internationally, the analyst said that "while Europe appears to be in a better position than the U.S. regarding the pandemic, we doubt the region will have any meaningful new content to show at re-opened theaters until North America is back on line." As a result, he sees Europe's box office results mirroring the domestic performance. "Latin America, with its high (and fast rising) level of COVID-19 cases seems to be further behind an eventual North American reopening," he added. "As of right now, we would be surprised if the region reopens at all in the third quarter.

And China remains "a big question mark as the government has been reluctant to make any comments about the resumption of business for the exhibition industry," Handler wrote.

"Beyond this year, we do believe there is pent up demand for consumers to get out of their houses for entertainment although the ramp up in attendance will likely be gradual," he concluded. "We project domestic box office revenue of $9.1 billion (+158 percent) in 2021 and a 'back to normal' level of $11.5 billion (+26 percent) in 2022."

What does all that mean for investors in exhibition stocks? Handler said their "focus should return to liquidity until there is a broad reopening." He reiterated: "We continue to believe Imax and Cinemark are best positioned to navigate through current business issues given their well funded balance sheets."

AMC Theatres late Friday improved its balance sheet with news of a debt restructuring combined with $300 million in new capital. "Although AMC now has some breathing room, it remains highly levered and still pays a significant amount of interest expense while its free cash flow generation ability continues to be questionable," Handler said.