Cinemark Analyst Downgrades Stock on Film Slate, Reopening, Brazil Issues

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Cinemark CEO Mark Zoradi

B. Riley FBR's Eric Wold cites "uncertainty around key state opening timelines," the second-half film slate and a "worsening COVID-19 situation in Brazil" in moving to a "neutral" rating and cutting his price target to $13.

B. Riley FBR analyst Eric Wold on Monday downgraded his rating on shares of exhibition giant Cinemark from "buy" to "neutral," citing "continued uncertainty around key state opening timelines and [the] second-half film slate and [a] worsening COVID-19 situation in Brazil."

He cut his price target on the stock from $16 to $13.

"Even though we only recently upgraded Cinemark to 'buy' on April 6 after being on the sidelines for nearly five months, we have since become increasingly concerned around the potential for a second-half 2020 rebound as well as the company's exposure to Brazil as the COVID-19 pandemic worsens in that country," Wold wrote. "Since our upgrade, Cinemark shares have gained about 42 percent compared to an average gain of around 36 percent for the remainder of our exhibition coverage universe and a roughly 15 percent gain for the S&P 500."

The analyst also lowered his 2020 and 2021 revenue estimates for Cinemark, led by CEO Mark Zoradi, from $2.04 billion to $1.81 billion and from $3.27 billion to $3.14 billion, respectively. And he cut his adjusted earnings before interest, taxes, depreciation and amortization estimates from $294 million to $213 million for 2020 and from $656 million to $609 million in 2021.

While a handful of states have allowed cinemas to reopen, "including Cinemark's number 1 state, Texas," Wold wrote that "we continue to view this as somewhat irrelevant as we do not expect the major exhibitor chains to open their doors until late June or early July when the new wide-release titles are scheduled for the screens."

He also warned that the film release calendar for the second half of the year "could still be in flux," explaining: "We assume the studios are closely watching for any adverse changes in major market reopening time frames and/or movie-goer demand levels (in early reopening states) and could easily decide to delay...releases." His conclusion: "We may be in a situation where no studio wants to be first out of the gate even if they have a lack of competition — because an unsuccessful theatrical release would be more painful to the bottom line. We would view the movement of any additional titles out of the second half of 2020 as negative for investor sentiment."

Finally, Wold highlighted the "worsening COVID-19 situation brewing in Brazil," given Cinemark's big presence in Latin America and the fact that the firm's Brazil cinemas account for 43 percent of its screens in the region and 10 percent of its screens worldwide.

"According to Johns Hopkins University data, the number of daily confirmed COVID-19 cases in Brazil continues to climb higher — with indications that the number of deaths in that country could be the second highest in the world," the analyst wrote. "Given the meaningful impact on unemployment and economic trends in the country, we would expect negative implications for Cinemark's operations that potentially lingers beyond any moviegoing rebound in the U.S."