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Cinemark stock (NYSE:CNK) is 9% higher Tuesday morning as Morgan Stanley upgrades it to Overweight, seeing heavy upside in the ongoing return to theaters by moviegoers.
"Beginning in late '21, the N. American box office has been trending steadily upward as consumers have become more comfortable with going to theaters," analyst Benjamin Swinburne says - with another step up coming this summer with 2021's biggest film, Top Gun: Maverick (PARA) (PARAA), but also films drawing broader audiences, such as family movies.
More importantly, the movie business is driven by about 65% of the population, Swinburne says - and the 11% minority that are "frequent" moviegoers drive about half of ticket sales historically, and he sees those customers returning to theaters in a big way.
Aside from attendance, though, monetization is important, and both per capita concession spending and average ticket prices have bounced back strong in 2021 and 2022, while Cinemark (CNK) has invested in innovative products to improve monetization.
"Moviegoing has also proven counter-cyclical as a form of inexpensive entertainment, insulating CNK from a slowing economy," Swinburne said.
Digging into numbers, he expects North American box office can grow back to about 85% of 2019 levels in 2023, and that Cinemark (CNK) can maintain about a 14% market share (above its pre-pandemic average).
Using a historically low-end multiple, he's set a price target of $22, now implying 21% upside - but a bull-case scenario (with a full box-office recovery by 2023) suggests faster deleveraging and a stock that could double to $36.
Cinemark's (CNK) June performance was the best since the start of the COVID-19 pandemic.