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March 21, 2020, 11:05 a.m. EDT

Cinema stocks rally on hopes for sector bailout after coronavirus forces closures

Trade association has asked the government for loan guarantees for exhibitors, tax benefits for employees and funds to offset lost ticket sales and concessions

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By Ciara Linnane, MarketWatch


Getty Images
Cinemas are being hit hard as theaters are forced to close to prevent COVID-19 from spreading

Shares of cinema operators rallied on Thursday, bouncing off the lows seen earlier this week on growing hopes they may receive a government bailout as one of the sectors that is being hard hit by the coronavirus that causes COVID-19.

With entire sectors being forced to shut down, fears are growing that millions of workers could soon be out of work, leading the government to consider a bailout program on a scale that would far outstrip the multibillion-dollar package implemented during the 2008 financial crisis.

Cinemas across the country have been forced to close their doors to prevent people from gathering in large numbers, which health professionals say is crucial in containing the virus, which has now infected more than 9,400 Americans and killed at least 150.

The National Association of Theatre Owners, or NATO, the trade group that represents 33,000 screens in all 50 states, said Wednesday that it has asked the government for help to support its 150,000 employees. The theater operators are seeking loan guarantees for exhibitors, tax benefits for employees and funds to offset lost ticket sales and concessions.

The business model of the movie theater industry is “uniquely vulnerable” in the present crisis, according to NATO Chief Executive John Fithian.

The association has approved the release of $1 million from its reserve to aid movie theater employees who are out of work due to movie theater closures. The money will be used “as seed funds for an effort to help tide workers over in this crisis in cooperation with our industry partners,” NATO said in a statement.

“We want our policy makers to know that at the end of this thing, when people have been cooped up in their house for several months, they’ll need a break to go out and do something collectively that’s affordable and fun and away from what they’ve just been through,” he said. “But we still need to be viable.”

Imperial Capital reiterated its outperform rating on AMC Entertainment Holding Inc. /zigman2/quotes/200235402/composite AMC +14.73% , the nation’s biggest cinema chain on Thursday, although it cut its stock price target to $7 from $30.

“We believe AMC has the wherewithal to remain a going concern until at least 8/1/20, or perhaps even until 10/1/20 given further cuts in maintenance capex, if the severity of the crisis eases by the end of the 12 weeks, which would be 6/9/20,” analyst David Miller wrote in a note to clients.

“AMC’s equity, which closed at $2.47 on 3/18/20, could see a significant rebound, especially given the potential of pent-up demand by movie-goers,” he wrote.

The closing of its theaters came just 2½ weeks after AMC held a “very successful” fourth-quarter earnings call, according to Miller. The company outperformed the U.s. box office index, outperformed in Europe for a third straight quarter, cut capex guidance for the second time in six months, announced a $200 million share buyback program, and beat consensus estimates on almost every metric, he wrote.

Since then, major film releases have been pushed back, including the latest installment in the James Bond franchise, “ No Time To Die,” from MGM Holdings, the live-action “Mulan” from Disney /zigman2/quotes/203410047/composite DIS -0.68% , and Universal’s /zigman2/quotes/209472081/composite CMCSA -0.14%  “Fast 9,” all films with the potential to generate more than $1 billion in global receipts, according to Miller.

At the end of the quarter, AMC had total liquidity of $597.0 million, comprised of $265 million in cash and $332.0 million available under revolving credit lines. Its capex guidance of $275 million to $300 million, could easily be cut to maintenance levels, which Miller estimates at $130 million to $150 million.

“In addition, AMC’s overall cost structure is, by way of our analysis, 60% variable, with film rents, food/beverage costs, and hourly wages to theater employees being the most elastic inputs.

“The only fixed cost in the model is rent, and our assumption is that CEO Adam Aron and his staff will likely be talking to their various lessors about some sort of temporary relief, which we are not factoring in to our models at this time,” said the analyst.

AMC shares were last up 8%. Cinemark Holdings Inc. /zigman2/quotes/200040530/composite CNK +5.33%  was up almost 62%, putting it on track for its biggest one-day percentage gain in FactSet data going back to April of 2007.

IMAX Corp. /zigman2/quotes/205456197/composite IMAX +3.31%  was up 40% and cinema advertising network operator National CineMedia Inc. /zigman2/quotes/210013369/composite NCMI +2.41% was u 36%.

U.S.-listed shares of Cineworld Group PLC /zigman2/quotes/206525056/delayed UK:CINE -0.99% , the U.K. company that owns Regal Theaters, were up 3.8%.

The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.06%  was up 0.7% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.17% was up 0.6%.

/zigman2/quotes/200235402/composite
US : U.S.: NYSE
$ 4.75
+0.61 +14.73%
Volume: 24.92M
Aug. 7, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$519.27 million
Rev. per Employee
$135,969
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/zigman2/quotes/203410047/composite
US : U.S.: NYSE
$ 129.93
-0.89 -0.68%
Volume: 16.09M
Aug. 7, 2020 4:02p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$234.79 billion
Rev. per Employee
$295,532
loading...
/zigman2/quotes/209472081/composite
US : U.S.: Nasdaq
$ 42.81
-0.06 -0.14%
Volume: 10.35M
Aug. 7, 2020 4:00p
P/E Ratio
17.17
Dividend Yield
2.15%
Market Cap
$195.56 billion
Rev. per Employee
$513,625
loading...
/zigman2/quotes/200040530/composite
US : U.S.: NYSE
$ 11.06
+0.56 +5.33%
Volume: 15.27M
Aug. 7, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$1.30 billion
Rev. per Employee
$109,211
loading...
/zigman2/quotes/205456197/composite
US : U.S.: NYSE
$ 11.86
+0.38 +3.31%
Volume: 1.13M
Aug. 7, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$698.05 million
Rev. per Employee
$567,274
loading...
/zigman2/quotes/210013369/composite
US : U.S.: Nasdaq
$ 2.97
+0.07 +2.41%
Volume: 597,722
Aug. 7, 2020 4:00p
P/E Ratio
21.54
Dividend Yield
9.43%
Market Cap
$487.50 million
Rev. per Employee
$823,507
loading...
/zigman2/quotes/206525056/delayed
UK : U.K.: London
34.90 p
-0.35 -0.99%
Volume: 32.18M
Aug. 7, 2020 4:35p
P/E Ratio
3.40
Dividend Yield
0.00%
Market Cap
£479.11 million
Rev. per Employee
N/A
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
3,351.28
+2.12 +0.06%
Volume: 2.28B
Aug. 7, 2020 5:10p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,433.48
+46.50 +0.17%
Volume: 324.93M
Aug. 7, 2020 5:10p
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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