'Barbenheimer' can boost Cinemark shares more than 35% from here, Morgan Stanley says

Published Mon, Aug 7 20236:51 AM EDTUpdated Mon, Aug 7 202311:51 AM EDT

Despite the overhang of the Hollywood labor strikes, "a significant bull case remains" for Cinemark , according to Morgan Stanley. The firm said the July box-office boom from the dual release of "Barbie" and "Oppenheimer" squashes the theatrical bear case despite ongoing uncertainty from the dual labor strikes. Analyst Benjamin Swinburne raised his price target on shares to $24 to $22, suggesting 36.9% upside from Friday's close. He reiterated his overweight rating on shares. "Balancing the permanence of the good news with the transience of the bad news keeps us OW," Swinburne said in a Monday note. He added, "We continue to see theatrical revenues as the fastest area of growth in Media & Entertainment in '23 now expected to be ~25% YoY. This is based on further box office growth in '24, but '24 attendance at just ~70% of '19 levels which we see as potentially conservative. We have a $14 bear case PT or ~20% downside." "Barbie" reached $1 billion at the box office in just three weeks, according to Warner Bros. "Oppenheimer," meanwhile, has surpassed the $500 million mark, Universal said, bringing the total "Barbenheimer" proceeds to more than $1.5 billion. Cinemark shares are trading at a discounted multiple relative to historical levels, likely due to the uncertainty surrounding the labor strikes and their effect on future film supply, Swinburne noted. Although he acknowledged limited visibility on the issue, he forecasts "limited impact" of the strikes on 2024 performance, barring production remaining shut down beyond late fall. "Strikes-aside, studios continue to build back production and we expect increased film supply from both traditional and streaming studios over the next few years. We continue to expect film supply to ramp in '24 vs '23, for now, supporting ~5% box office revenue growth," said Swinburne. The analyst added that Cinemark is "uniquely positioned" to benefit from the North American box office recovery owing to a combination of factors, including its conservative balance sheet pre-Covid. The company's investment in premium in-theater offerings and technology have also helped it gain domestic market share and grow average ticket price mostly organically, versus price hikes, Swinburne continued. The countercyclical nature of moviegoing trends also relieve pressure of macroeconomic downturns, according to Morgan Stanley. "While macroeconomic outlook concerns continue, particularly with a weaker than expected 2H23 ad market in broader media, core movie going trends remain strong, with US ATP up 18% and per caps up 40% vs 2Q19," Swinburne said. The stock added 1.2% Monday before the bell. Shares have more than doubled year to date. CNK YTD mountain CNK in 2023 — CNBC's Michael Bloom contributed to this report. Disclosure: NBCUniversal is the parent company of Universal Studios and CNBC.