Cinemark Holdings on Monday finished the trading period with shares up nearly 11% as much of the industry experienced upticks on the back of a market rebound.
AMC shares closed up nearly 27% and shares of Regal Cinemas' U.K. parent company Cineworld Group were up roughly 9%.
B. Riley FBR analyst Eric Wold upgraded Cinemark's stock on Monday to "buy" from "neutral," amid growing confidence that the theatrical box office will be able to get back its footing following the novel coronavirus pandemic.
"We came away from our recent hosted group investor call increasingly confident in management's ability to control cash flow and get through this shutdown period without any adverse liquidity events--and be in a position of strength on the other side," Wold wrote in a note to clients. "We view this as an attractive additional entry point for investors who remain positive on the exhibition industry in general and want to be positioned for when visibility into a theater reopening timeline becomes clearer."
Cinemark shares have plummeted 74% since Feb. 20, compared with a 26% decline for the S&P 500. The stock upgrade and projected $14 price target -- shares closed Monday at $9.28 -- represent potential upside of 67% from current levels and a potential total return of 84%, Wold said, should the dividend remain intact.
Like much of the industry, the cinema chain -- one of the largest in the U.S. -- has taken a beating as a result of the spread of the coronavirus. With theaters across the country shut down, Cinemark has been forced to slash the pay of its corporate workforce by at least 50%, while CEO Mark Zoradi said last week that he would forgo his entire salary for the duration of the pandemic.
Cinemark isn't alone; AMC, the nation's largest theater chain, was forced to furlough 600 corporate employees, including CEO Adam Aron.
Wold said that during his meeting with Cinemark, management noted that the company could have operated profitably at roughly 50% capacity -- but only if the content was there.
"While the decision to close the domestic theaters was not made by management, this gives us increased confidence of the company's ability to operate profitably as attendance begins to ramp and return to normal following the mandated theater closures," Wold wrote. "We estimate that [Cinemark's] existing cash balance and availability on the credit facility would provide enough liquidity for the company to last nearly nine months without any revenue coming through the door."
S&P Global recently changed the credit outlook of Cinemark (BB: Non-investment grade speculative) to "credit watch negative" from "stable."
Due to the closure of movie theaters and the stay-at-home guidelines, studios have either pushed film releases past the pivotal summer months, taken them off the slate for 2020 altogether, or marooned them to streaming services.
Last week, Disney pushed the releases of "Mulan" and "Black Widow," while punting "Artemis Fowl" to its Disney+ streaming service in lieu of a theatrical release. Wold said Disney's moves provide confidence that the box office will be able to adjust.
"We believe some of the calendaring decisions made by Disney should help to drive some optimism with investors that the studios will work to build a solid film slate that both inspires consumers to return to the theater and avoids an overly crowded calendar that adversely impacts box office revenues," Wold wrote. "While movie theaters and the overall industry will suffer from a full lock-down for two to three months and a potentially slow rebound in attendance trends, we are increasingly optimistic that studios will be flexible to create a evened out release schedule in the coming years to boost the industry's overall health during the recovery."