The new forecast from B. Riley’s Eric Wold — one of the top exhibition analysts on Wall Street — may sober investors, and exhibition execs as they prepare to party at next week’s CinemaCon confab in Las Vegas. Wold just downgraded the sector to “sell,” projecting that domestic box office sales will drop 5% in 2016 after rising 8% in 2015. None of the major chains’ stock prices reflect that possibility, he says.
His shift contributed to a dreary morning for theater company stocks — which collectively soared in Q1: Regal, AMC, Cinemark, and Carmike are all down on a day when the rest of the market is slightly up.
Wold says he changed his 2016 forecast to a downturn, from a modest upturn, after looking at changes in release dates for films including Avatar 2 (to December 2017 from December 2016) and Star Wars: Episode VIII (planned for May 2017 vs expectations for December 2016).
“Given that we believe these two films could have easily been the top two films of the year and contributed as much as $500-$700 million along to the year’s box office total, the release date shift impacted our original growth projection by a cumulative 4.0-6.0%,” Wold says.
That’s a problem because exhibition stock prices are unusually high. They reflect investor expectations for “a perfect 2015 box office year” plus “an even stronger 2016.”
Sure, theaters might surprise with sales of premium priced tickets for venues with cushy recliner seats, or expensive concessions including liquor. In addition, investors may benefit from mergers and acquisitions. For example, Carmike recently said it’s looking for a buyer.
But that’s “too much of a wildcard,” Wold says. Box office performance usually drives the stocks. That means “the entire group could be at risk” if ticket sales disappoint.
Others also say it’s time for investors to re-think their enthusiasm for exhibition. Last week MKM Partners’ Eric Handler downgraded AMC to “neutral,” saying that its stock price is already “at a near-peak level.”