Despite various challenges, the entertainment industry's accelerated technological progress may herald a growth phase. My analysis suggests that IMAX Corporation (IMAX) is a solid candidate to trade now. On the other hand, I believe Cinemark Holdings, Inc. (CNK) is worth watching, and AMC Entertainment Holdings, Inc. (AMC) is best avoided now.
As the excruciating impacts of the pandemic started to dissipate, studios and film financiers rolled back the previously necessary costly safety measures, relieving budgets bloated by millions of dollars. They are also avoiding the extensive shutdowns that dogged the film sets during the initial years of the virus.
But now the entertainment industry grapples with economic headwinds, potentially undermining the cost savings achieved in the post-pandemic production phase. Rising prices due to soaring labor and transportation costs to elevated expenses for acquiring set materials are pushing film budgets to their limits. Alongside these increases are the cost escalations for securing film financing due to consistent interest rate hikes.
Despite a 15% surge in U.S. movie ticket prices compared to pre-pandemic levels in 2023, cinema-going remains reasonably affordable. As per Boxoffice Pro’s chief analyst, Shawn Robbins, 2023 box office sales have already streaked ahead of last year's by $1 billion, amassing impressive gross earnings of $5.8 billion up until July 30, in sharp contrast to the $4.8 billion recorded in the prior-year quarter.
Integrating a wide variety of OTT services across American households' streaming devices is anticipated to be a robust growth engine propelling the regional media and entertainment industry.
Technological advancements have also made considerable inroads into the movie entertainment sector, altering how films are produced, distributed, and enjoyed. Attention-grabbing augmented reality (AR) and virtual reality (VR) content have drawn the focus of media and entertainment conglomerates.
Additionally, industry leaders are resorting to artificial intelligence (AI) tools, leveraging machine learning algorithms and natural language processing to refine content and predict audience engagement based on tailored recommendations.
The global movies and entertainment market is predicted to reach $169.62 billion by 2030, growing at a CAGR of 7.2%.
Given this backdrop, fundamentally strong movie entertainment stock IMAX could be a solid candidate to trade now. However, it could be wise to hold CNK and avoid AMC.
Stock to Buy:
IMAX Corporation (IMAX)
Headquartered in Mississauga, Canada, IMAX is a global technology platform for entertainment events. The company’s segments include IMAX Technology Network; IMAX Technology Sales and Maintenance; and Film Distribution and Post-Production.
On August 2, IMAX announced that it delivered approximately $176.2 million at the global box office in July, marking its highest-grossing month in history. The figure surpassed the previous highwater mark, set in 2019, by a whopping $52.1 million.
IMAX’s forward EV/Sales of 3.34x is 78.1% lower than the industry average of 1.88x, while its forward Price/Sales of 2.72x is 124.1% lower than the industry average of 1.21x.
IMAX’s trailing-12-month levered FCF margin of 18.36% is 119.9% higher than the 8.35% industry average, while its trailing-12-month EBIT and EBITDA margins of 8.70% and 19.41% are 4.6% and 6.5% higher than the industry averages of 8.32% and 18.22%, respectively.
IMAX’s revenue grew at a CAGR of 11.4% over the past three years. Its EBITDA and levered free cash flow grew at 93.8% and 157.5% CAGRs, respectively, over the same period.
For the fiscal second quarter that ended June 30, 2023, IMAX’s total revenue increased 32.5% year-over-year to $97.98 million, while its gross margin grew 31.5% from the year-ago quarter to $57.89 million.
Its operating income was $14.23 million, compared to a loss of $101 thousand in the prior-year quarter. Also, the company’s adjusted net income and net income per share stood at $14.40 million and $0.26, up 269.2% and 271.4% year-over-year, respectively.
IMAX’s revenue is expected to increase 292.6% year-over-year to $388.62 million for the year ending December 2023. Also, its EPS is expected to grow significantly year-over-year to $0.86 for the same period. Moreover, the company has topped the consensus revenue estimates in each of the trailing four quarters.
IMAX’s shares have gained 31.9% year-to-date to close the last trading session at $19.34. Over the past six months, it gained 16.5%.
IMAX’s POWR Ratings reflect an impressive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It also has an A grade for Growth and a B for Sentiment and Quality. It is ranked first within the 6-stock Entertainment – Movies/Studios industry.
Click here for the additional POWR Ratings for Value, Momentum, and Stability for IMAX.
Stock to Watch:
Cinemark Holdings, Inc. (CNK)
CNK engages in the motion picture exhibition business, with 514 theaters and 5,812 screens in the U.S. and Latin America as of June 30, 2023. The company also had commitments to open five new theaters and 46 screens over the next two years.
CNK’s forward EV/Sales of 1.66x is 11.43% lower than the industry average of 1.88x. Its forward Price/Sales multiple of 0.71 is 41.7% lower than the industry average of 1.21.
CNK’s trailing-12-month EBIT margin of 8.86% is 6.5% higher than the 8.32% industry average. Its trailing-12-month CAPEX/Sales of 4.45% is 12.7% higher than the industry average of 3.95%.
CNK’s revenue and EBITDA grew at CAGRs of 9% and 30.4% over the past three years. Its total assets and levered free cash flow grew at 1.7% and 6.2% CAGRs, respectively, over the past five years.
CNK’s total revenue for the fiscal second quarter that ended June 30, 2023, increased 26.6% year-over-year to $942.30 million, while its operating income stood at $168.40 million, compared to an operating loss of $18.60 million in the year-ago quarter.
Net income and net income per share attributable to CNK came at $119.10 million and $0.80, compared to net loss and net loss per share of $73.40 million and $0.61, in the prior-year quarter, respectively. Its adjusted EBITDA increased 67.4% year-over-year to $231.50 million.
Analysts expect CNK’s revenue for the fiscal third quarter ending September 2023 to increase 14.4% year-over-year to $743.90 million, while its EPS is expected to come at $0.27. It has an impressive earnings surprise history, surpassing its consensus revenue estimates in each of the trailing four quarters.
CNK has gained 105.9% year-to-date to close the last trading session at $17.83. Over the past six months, it gained 52.4%.
CNK has an overall rating of C, which translates to Neutral in our POWR Ratings system.
It has an A grade for Growth and Momentum in our POWR Ratings system. It is ranked #2 within the same industry.
To access the other ratings of CNK for a C for Value, Stability, Sentiment, and Quality, click here.
Stock to Avoid:
AMC Entertainment Holdings, Inc. (AMC)
AMC engages in the theatrical exhibition business. The company owns, operates, and has interests in approximately 950 theaters and 10,500 screens worldwide.
AMC’s forward EV/Sales and EV/EBITDA of 2.90x and 32.60x are 54.7% and 283.5% higher than the industry averages of 1.88x and 8.50x. Its forward Price/Sales multiple of 1.63 is 34.7% higher than the industry average of 1.21.
AMC’s trailing-12-month gross profit margin of 10.74% is 78.3% lower than the industry average of 49.37%. Its trailing-12-month EBITDA margin of 3.82% is 79% lower than the industry average of 18.22%.
Its revenue has decreased at a CAGR of 4.7% over the past five years, while its EBITDA has declined at a 28.6% CAGR over the same period.
AMC’s revenues for the fiscal second quarter that ended June 30, 2023, stood at $1.35 billion, while its operating costs and expenses increased 6.8% year-over-year to $1.26 billion. Its net cash in operating and investing activities stood at $13.40 million and $40.80 million, respectively. The company’s adjusted net loss stood at $6.60 million.
Street expects AMC’s EPS to come at negative $0.26 for the fiscal year ending December 2023, while its revenue is expected to come at $4.62 billion.
The stock has lost 79% over the past year to close the last trading session at $4.98. Over the past three months, it lost 9.3%.
It’s no surprise that AMC has an overall D rating, equating to a Sell in our POWR Ratings system.
It has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked last in the Entertainment – Movies/Studios industry.
Beyond what is stated above, we’ve also rated AMC for Growth and Momentum. Get all AMC ratings here.
What To Do Next?
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AMC shares were trading at $5.09 per share on Friday afternoon, up $0.11 (+2.21%). Year-to-date, AMC has gained 25.06%, versus a 17.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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