Analyst says sell Cinemark on weaker theater outlook, VOD threat

Credit Suisse downgraded theater owner Cinemark (CNK) to Underperform, its equivalent of a sell rating, from Neutral. As reasons for the downgrade, the firm cited "weak box office trends" and the looming threat of video on demand. Based on similar concerns, the firm cut its price target on two other theater owners: Regal (RGC) and AMC (AMC). It also lowered its price target on another movie-linked stock, IMAX (IMAX), citing a lack of near-term catalysts. WEAK THEATER TRENDS: U.S. box office trends have been weaker than expected this quarter, as revenues are on track to fall 2% versus the same period a year earlier, according to Credit Suisse analyst Omar Shikh. The analyst continues to estimate that U.S. box office revenue will be flat this year, but he predicts that box office revenue will have to jump 15% in order to meet his 2017 estimate. PREMIUM VOD: Studios are going to continue to seek to launch premium video on demand rentals this year and the analyst thinks that such a development will probably cause movie theaters' profits to decline. PRICE TARGET: Sheikh cut his price target on Cinemark to $34 from $38. OTHER THEATERS: Sheikh cut his price target on Regal to $17 from $19, on AMC to $20 from $26, and on IMAX to $26 from $33. He kept Underperform ratings on Regal and AMC and maintained a Neutral rating on IMAX. Regal and AMC will be hurt by the same factors as Cinemark, while IMAX has few catalysts and is increasing its investment in new initiatives, causing its profits to drop significantly this year, Sheikh wrote. The analyst believes that IMAX will grow in 2018, but he says that it lacks near-term catalysts. PRICE ACTION: In afternoon trading, Cinemark fell 3.6% to $38.39, Regal lost 1.5% to $20.46, AMC slid 1.5% to $22.70 and IMAX gave back 3.4% to $23.40.