Exhibition Analysts Cut AMC Stock Ratings on Coronavirus

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The shutdown of U.S. cinemas "will dramatically impact revenues and adjusted earnings before interest, taxes, depreciation and amortization" for most operators, says B. Riley FBR's Eric Wold.

With U.S. cinema giants shutting down across the country amid the coronavirus pandemic, one Wall Street analyst on Wednesday downgraded his rating on the stock of AMC Theatres and weighed in on the impact on such other sector companies as Cinemark and Imax.

His report came after the three biggest U.S. exhibitors, AMC, Cineworld-owned Regal Cinemas and Cinemark, early this week said that all of their U.S. movie theaters would close indefinitely.

"We are revisiting our estimates and ratings ... as the continued efforts to control the spread of COVID-19 essentially forced movie theater operators to close all or the majority of their locations globally — in a situation that has the potential to last well into the second quarter," B. Riley FBR analyst Eric Wold wrote in his report. "Although the demand outlook for the upcoming weeks was already relatively low given that most of the high-profile films had seen their first-half release dates shifted into the second half of 2020 or first half of 2021 and theater operators and movie-goers had begun to practice 'social distancing,' the closure of the theaters in the U.S. and Europe will dramatically impact revenues and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for most of the operators."

He said he was "assuming significant impacts to financial results through the end of the second quarter, but not meaningfully changing our second half of 2020 or 2021 estimates even with the release calendar shift into those periods."

Wold also argued that "movie-going demand could snap back in the second half of 2020/first half of 2021," highlighting that numerous films have seen their release dates pushed back to later in the year "or even into next year, including No Time to Die, Fast & Furious 9, Mulan, Black Widow and A Quiet Place 2. "However, with theaters now closing up shop for the foreseeable future, we would expect just all films scheduled to be released between now and the end of May to immediately delay their releases and/or consider an on-demand option, with this latter option highly unlikely for most films, in our opinion."

Wold concluded: "While we are not taking this possibility into consideration with our updated models, we cannot rule out the possibility that the combination of a film slate crowded with blockbuster titles, a movie-going population that has been cooped up in their houses for weeks, and a streaming/TV title inventory that has likely been exhausted during that time could increase movie-going demand materially in the six to 12 months after theaters are re-opened. While we would normally see the potential for this to drive demand above an already optimistic view for 2021, we also have to consider that the delays in some film production could push 2021 titles into 2022."

Wold downgraded AMC from a "buy" to a "neutral" rating, reducing his price target on the stock from $13 to $3.50. "While AMC could still benefit from its AMC Theatres On Demand offering, we will assume that attendance and revenues are essentially eliminated until at least the end of April," he explained. "Although this will create a meaningful strain on AMC's balance sheet in the coming weeks, we believe the company has the ability to preserve necessary cash by reducing variable operating expenses and near-term cap-ex spending, as well as possibly pausing the regular quarterly dividend."

He cut his 2020 revenue and adjusted EBITDA estimates for the company from $5.4 billion to $4.2 billion and from $743 million to $291 million, respectively. AMC Theatres shares were trending down more than 14 percent in pre-market activity.

On Cinemark Holdings' stock, Wold maintained a "neutral" rating, reducing his price target from $32 to $17 and cutting his financial estimates for 2020. His revenue forecast for the company went from $3.2 billion to $2.5 billion, with his adjusted EBITDA estimate falling from $716 million to $450 million. Cinemark's stock was down more than 5 percent in pre-market activity.

Meanwhile, the analyst continues to rate Imax Corp.'s stock at a "buy," while on Wednesday reducing his price target from $26 to $19. Wold lowered his 2020 estimates for revenue and adjusted EBITDA from $340 million to $266 million and from $110 million to $59 million, respectively.

Also on Wednesday, Barrington Research analyst Jim Goss downgraded his rating on AMC Theatres from "outperform" to "market perform," saying that "it seems a high probability there will be a complete shutdown for the second quarter in the U.S." In his report, he also highlighted that beyond an extended closure of cinemas "there remains the open question of what content will be available when theaters reopen, suggesting soft results even beyond that timeframe."