After sharp declines in valuation, theater companies were left reeling during the multiple waves of the COVID-19 pandemic. Hopes of a rebound have yet to materialize, although waning restrictions and and improving consumer environment have been elevating bullish sentiments.
In my opinion, Cinemark Holdings (CNK), a Plano, Texas-based entertainment company involved in the film theater business, could be among the firms that will help resurrect the sector. Thus, I am bullish on this stock.
The company entertains its customers on 5,868 screens in 522 theaters across the United States, Central America and multiple locations in Latin America.
Q4 2021 Results
As a result of Cinemark’s outperformance of the North American industry box office and other industry benchmarks in South America), GAAP earnings per share of $0.05 (vs. a net loss of $2.03 in the year-ago quarter) exceeded the median consensus estimate by $0.19. Total revenue of $667 million represented an impressive 580% year-over-year increase.
Cinemark also outperformed analysts on revenue, as the average of their estimates was nearly $70 million below the company’s top-line result.
On an adjusted basis, EBITDA for the quarter also improved dramatically year-over-year as it was $139.4 million, compared to a loss of $97.5 million for the same period in 2020.
Financial Condition
The company’s balance sheet remains weak and requires strengthening. As of December 31, 2021, it had $707.34 million in cash, which was 5.6 times less than its total debt of $3.95 billion.
The Altman Z-Score of 0.26 indicates that the company is currently in troubled areas.
Outlook
Prospects for Cinemark’s business are very favorable. The lifting of restrictions will continue to ramp upsides as Covid-19 improves, providing a more favorable backdrop as individuals gravitate toward public places such as cinemas and theaters again.
With theater and screen expansion planned for this year and years to come, Cinemark aims to be poised to offer a broader selection of films to a wider audience, and to benefit from the strong tailwinds expected from increaed consumer demand for films.
Wall Street’s Take
For the past three months, seven Wall Street analysts have issued a 12-month price target for CNK. The company has a Hold consensus rating based on two Buys, four Holds, and one Sell ratings.
The average Cinemark Holdings price target is $21.37, implying a 38.% upside potential from current levels.
Conclusion
There is pent-up demand for the film exhibition business, and Cinemark is strengthening its fishing net. The stock, which has fallen significantly over the past three months, could have a strong recovery.
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