With the resurgence of cinema-goers returning to theaters, National CineMedia (NASDAQ:NCMI) is well-positioned to drive substantial revenue from an increasing interest in advertising to the core demographic of Gen Z and Millennials, who comprise roughly 70% of the theater-watching audience. While NCMI stock appears fairly valued, investors may want to hold off for now and wait to see more progress on the financial side before considering taking a position.
Interestingly, it is estimated that one in six Americans participated in the “Barbenheimer” phenomenon, seeing one or both movies opening weekend. This led to the largest opening weekend for movies post-pandemic and the fourth largest on record. When they did, it’s a good bet that a majority were treated to a slate of advertising provided by National CineMedia, the largest cinema advertising platform in the U.S. (if you’ve seen Maria Menounos doing movie trivia before the show, you’ve been advertised to by them).
Post-Pandemic Rebound
National CineMedia showcases ads in movie theaters, online, and on mobiles. Like many in the theater industry, the company experienced an economic blow due to the COVID-19 pandemic. As theater attendance dropped, the company’s revenues fell significantly, causing a reliance on loans to cover revenue deficits.
After a struggle with an unmanageable debt burden, the company was forced to file for bankruptcy last spring. Post-bankruptcy, National CineMedia underwent a substantial transformation, restructuring, reducing debt, and replacing its entire board of directors.
A leaner, debt-free company, National CineMedia is now well-positioned to take advantage of the rebound in cinema attendance post-pandemic. Attendance has been gradually returning to near-historic levels – but not quite there yet.
National CineMedia’s Results and Projections
National CineMedia recently reported Q4 EPS of $0.24, significantly above the consensus expectation of $0.08. Q4 revenue was $90.9 million, again outperforming market estimates, pegged at $81.1 million.
Looking forward, management anticipates ongoing softness in the 2024 film slate due to the prolonged industry strikes that limited movie releases for the year. They expect Q1 2024 revenue between $34.5 million and $35.5 million, an estimate slightly above projections of $32.5 million. For comparison, the total revenue for the first quarter of 2023 was $34.9 million.
Looking to 2025, the company anticipates that the box office will fully rebound, driving strong revenue growth opportunities for advertising.
National CineMedia also announced a $100 million share repurchase program, which it plans to use opportunistically to repurchase shares at prevailing market prices over the next three years, signaling confidence in its business model and cash flow generation.
Is NCMI a Buy, Hold, or Sell?
NCMI stock is up over 30% year-to-date and sits toward the upper end of the 52-week price range of $1.12-$6.49. Shares appear to be priced at fair value, though the post-bankruptcy valuation metrics are a bit off at this point and would benefit from more data.
Analysts following the stock have been cautiously optimistic, with B.Riley analyst Eric Wold having the only bullish review. He recently upgraded the company to a Buy rating and assigned a price target of $6.75, citing the expected boost in demand, the company’s revamped cost structure, and adoption of new technology as drivers to unlock expansion in the valuation multiples.
NCMI is currently rated a Moderate Buy based on one Buy and two Hold ratings in the last three months. The average price target for NCMI stock is $6.13 represents a 14.6% upside from current levels.
Lights, Camera, Conclusion
As the largest cinema advertising platform in the U.S., National CineMedia is primed to harness the cinema attendance rebound, especially with a desirable advertising target demographic. Strong Q4 EPS and revenues marked the beginning of the company’s financial recovery.
Still, the guidance of box-office softness through 2024 suggests investors won’t really see confirmation of a complete turnaround until a box-office rebound in 2025. Given the stock’s current valuation levels, it seems prudent to be on the sidelines until more favorable financial results are in the books.
