Exhibition stocks are taking a hit today after Credit Suisse’s Omar Sheikh downgraded the sector, anticipating “slowing growth” in attendance per screen and concession sales per patron.
He sees 2017 box office sales remaining flat with 2016.
The analyst also anticipates a potential problem from studios’ renewed efforts to shorten the window during which theaters exclusively offer new films.
“Any shortening of the nine-week theatrical window would likely curtail theater owners’ box office proceeds and concession revenues, and potentially limit the benefits of newly upgraded premium seating and concessions initiatives,” he says.
National CineMedia took the biggest hit: It’s off 5.4% in midday trading after the analyst dropped its target stock price to $13.00 — a whopping $8.00 cut.
Sheikh says this will be “a tough year for cinema advertising.” His checks with marketers show that 14% “may shift spending out of cinema advertising over the next two years,” offsetting the 9% who expect to increase.
In addition, NCM shares will suffer from AMC Entertainment’s agreement with the Justice Department to sell off much of its holdings in the ad sales company. Antitrust officials approved AMC’s $1.1 billion acquisition of Carmike Cinemas after it said it will reduce its 17.4% stake in NCM to less than 5% by June 2019.
And exhibition companies might hurt ad sales with initiatives to sell assigned seats, which means buyers still can be assured of sitting where they want even if they show up at the last minute.
But theater chains are also down today.
Regal shares are off 3.2% after Sheikh reduced his target price by 9.1% to $20.00. He notes that concessions sales have been “an important driver of overall top line growth” but have “been recently trending down” along with attendance per screen.
Imax shares are down 2.5% after the analyst slashed his target price by 19% to $34.00. Along with the industry-wide concerns, Sheikh says that the large screen provider may see growth slow in China where large Tier 1 cities are “nearly saturated.”
AMC Entertainment is down 2.4% after the analyst cut his recommendation to “neutral” from “outperform” — but raised his target price by $1.00 to $34.00.
And Cinemark is down 1.3% even though Sheikh reiterated a “neutral” rating and raised his target price by $3.00 to $40.00.