Imperial Buys A Ticket For AMC, Cinemark

Investors in movie exhibitors have been spooked by the prospects of premium video-on-demand and declining box office trends.

But Imperial Capital is queuing up for AMC Entertainment Holdings Inc AMC and Cinemark Holdings, Inc. CNK.

The Rating

Analyst David Miller initiated coverage of AMC and Cinemark with Outperform ratings and respective price targets of $23 and $46.

The Thesis

Imperial considers Cinemark the “highest quality name” in movie theaters.

“It offers investors impressive unit growth, enviable cost management, consistent over-indexing against the general market, a strong balance sheet, industry-leading margins, demand curves which continue to move to the right, a stable management team and a robust dividend,” Miller said in the Wednesday upgrade note. (See the analyst's track record here.) 

On top of that, Cinemark is a leader in the underserved Latin American market, which gives it exposure to the high-growth international box office, the analyst said.

A focus on wealthy suburbs, compounded by the launch of the profit-driving MovieClub, are seen to bolster the chain’s earnings prospects.

AMC has started to recover from an unwarranted decline, and with new cost-savings initiatives and surge pricing in place, the business looks attractive, Miller said. 

“We also believe that, with unrivaled global scale of 10,790 screens, AMC has finally hit an inflection point where scale, in what is essentially a price-elastic business, is going to drive a decrease in film rents, and hence, an increase in adjusted EBITDA margins,” the analyst said.

Price Action

Cinemark was trading marginally lower at $36.69 at the time of publication Wednesday, while AMC traded up 1.32 percent at $17.60. 

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