Movie theater chain Cinemark Holdings, Inc. NYSE: CNK
stock is down over (-70%) year-to-date (YTD) compared to the 15.5% performance for the benchmark S&P 500 index NYSEARCA: SPY
. The movie theater business has been ravaged by the pandemic
and the recent announcements of same-day streaming and theater releases of 2021 movies by Disney NYSE: DIS
and AT&T Warnermedia NYSE: T
. This caused shares to collapse along with peers AMC Entertainment NYSE: AMC
and IMAX Corporation NYSE: IMAX
. Further damage in the form of new shutdown mandates for non-essential businesses in the U.S. and U.K. to slow another surge of COVID-19 infections despite the distribution rollout of COVID-19 vaccines
already under way. The triple shock has been so severe that competitor AMC filed an emergency offering of up to 178 million shares with a dire warning that without additional liquidity, the Company would deplete existing cash reserves hinting at potential bankruptcy. Surprisingly, AMC’s announcement and subsequent (-17%) stock decline didn’t spread over to Cinemark shares, due to the potential for market share gains by attrition. Prudent investors may watch for opportunistic pullback levels to gain exposure on the new narrative for Cinemark as a fallout survivor as it moves up to the number two spot of the top three largest theater chains.
Q3 FY 2020 Earnings Release
On Nov. 5, 2020, Cinemark reported an earnings-per-share (EPS) loss of (-$1.25) excluding non-recurring items versus consensus analyst estimates for a loss of (-$1.27), a $0.02 beat. Revenues collapsed (-95.7%) year-over-year (YoY) to $35.5 million, falling way short of analyst estimates for $103.6 million. The Company had only 252 U.S. and 15 international theaters open to limited hours showing limited releases and library content. Attendance for the third-quarter was 1.9 million customers with $14.9 million in ticket sales and $9.1 million in concession sales. The Company has launched Private Watch Parties as one of its innovative new ways to maximize revenues. Cineworld plans to open two new theaters and 16 additional screens for the remainder of 2020. The Company ended the quarter with approximately $825.7 million in cash and cash equivalents.
Conference Call Takeaways
Cinemark CEO, Mark Zoradi, emphasized the top priority of maintaining “stringent cash and liquidity management” to weather the unprecedented pressures that have arisen as a result of the COVID-19 pandemic. The pressures include delays in new film content, operating constraints imposed by government regulations, safety protocol expenses and the challenge to demand amid the pandemic. The Company has already sold nearly 50,000 private launch party events where more than 600,000 people have attended to date with “a significant portion reporting it was their first time back in the theater since the shutdown”. These are more than covering the incremental costs of theater operations including film rental, concession costs, janitorial, hourly payroll, cleaning and janitorial services. During the period of low demand, the Company has limited concessions to the “highest value core offerings that require less labor to fulfill and have less risk of spoilage.” The Company has permanently closed 21 underperforming theaters, trimmed corporate staff and continues negotiations with landlords for rent abatement and contractual payment deferrals and modifications. The Company also raised $250 million in new five year senior secured notes. The Company also netted approximately #390 million of incremental liquidity on five year convertible senior notes and $116 million of tax refunds from the CARES Act with another $100 million plus in refunds expected. This resulted in $825.7 million in global cash balance. The monthly normalized cash burn rate “is approximately $50 million per month.”, according to Cinemark CFO, Sean Gamble. The Company expects fourth-quarter burn rate to rise to $75 million per month due to the timing of bi-annual bond interest payments, phased settlement of rent deferrals and incremental interest payments from the recent debt raises. Cash burn rate is expected to fall to $65 million per month over the course of 2021. At the end of October, the Company had approximately $750 million in cash enabling a cash run rate that extends into Q4 2021 and into 2022 with the new tax refunds expect by Q2 2021.
Largest Theater Chains
AMC is the world’s largest theater chain with 636 locations and 8,094 screens followed by Cineworld with 549 locations and 7,211 screens and Cinemark has 533 locations with 5,974 screens. Cineworld has clearly managed it cash and liquidity better than AMC. The rollout of COVID-19 vaccines will eventually improve sentiment and pent-up demand for out-of-home entertainment. The plunder goes to the survivors of the movie theater fallout and Cinemark has enough cash to survive into Q4 2021, Prudent investors can look for opportunistic pullbacks to gain exposure.
CNK Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames enables a broader view of the playing field for CNK stock. The monthly rifle chart is attempting a stochastic divergence bottom to cross up through the 20-band as the monthly 5-period moving average (MA) is sloping up targeting the monthly 15-period MA near the $19.72 Fibonacci (fib) level. The monthly market structure low (MSL) buy triggers above $16.02. The weekly rifle chart has recovered the 5-period MA as stochastic nears the 80-band for a potential mini pup towards the $19.72 fib and monthly 15-period MA or a cross down to provide opportunistic pullback levels at the $$15.33 fib, $13.97 weekly MSH, $12.50 fib and the $11.01 fib. The upside trajectories range from the $20.95 fib up to the $34.46 fib.
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