Market Overview

Cinema Exhibitors Look Set to Profit From Strong Holiday Movie Slate

by Sterling Wong, Minyanville staff writer

Pass the popcorn. With an unusually strong slate of movies lined up this holiday season, theater operators will likely enjoy a strong surge in profits.
This year’s heavyweight fourth-quarter movie releases include Lionsgate’s (NYSE: LGF) The Twilight Saga: Breaking Dawn Part II, MGM and Sony’s (NYSE: SNE) James Bond film Skyfall, Universal’s (NASDAQ: CMCSA) evergreen musical Les Miserables, and probably the most anticipated one of them all, Warner Bros.' (NYSE: TWX) The Hobbit: An Unexpected Journey.
“The Hobbit looks like a monster in the best possible way. It's a four-quadrant film that people will wait in line for with a big fan base appeal. It's a big, huge holiday movie from a filmmaker who has also won Academy Awards,” Greg Foster, IMAX's chairman and president of filmed entertainment, told film news site TheWrap.
"I think we're looking at one of the bigger box office seasons," said Vincent Bruzzese, president of the market research firm Ipsos' motion picture group, according to TheWrap. "Last year, there was a diverse mix of films, which had something for everyone, but nothing that really excited anyone. This year, we're looking at more movies with a broader reach and a slate of films that inspires more urgency in people to go to the theater."
Because of the strength of this year’s holiday movie slate, Wall Street analysts are predicting strong fourth-quarter revenues from Cinemark (NYSE: CNK), Regal (NYSE: RGC) and Carmike (NASDAQ: CKEC). In fact, B. Riley & Co analyst Eric Wold upped his earnings estimates for the three theater operators yesterday for the second time in less than two weeks. On Tuesday, Benjamin Mogil from Stifel Nicolaus did the same for Regal and Cinemark, citing robust theatrical sales in the past few weeks.
According to Deadline, fourth-quarter domestic box office is currently running 20.2% ahead of the same period a year ago. As long as revenue for the quarter finishes at least 17.4% ahead of last year, which it is more than likely to do, then “it would just beat out the current Q4 box office record currently held by 2009, while also representing the sixth highest quarterly box office revenues in history,” noted Wold.
Wold also pointed out that The Hobbit, which will enjoy lucrative 3D and IMAX releases, alone could generate as much or even more revenue than that combined from two 2011 hits, Paramount’s (NASDAQ: VIAB) Mission: Impossible – Ghost Protocol and Warner Bros.’ Sherlock Holmes: A Game of Shadows
Analysts at MKM Partners were not quite as enthusiastic with their holiday box office forecast, but they nonetheless lifted their outlook on Regal Entertainment.
"With the box office tracking ahead of expectations, we are raising our 4Q estimates for Regal. Our revisions reflect an outlook for 14% box office growth in the quarter up from our prior 7% expectation (consensus is roughly 7%)," said MKM analyst Eric Handler in a note.
Handler has a Buy rating and $18 price target on Regal, and added that in the longer term, “Regal's 5.5% dividend yield provides a steady source of income that ranks in the top 5% of S&P 500 companies.”

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