UPDATE: Goldman Sachs Upgrades Cinemark (CNK) and Adds Stock to Conviction Buy List
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(Updated - October 31, 2016 8:36 AM EDT)
Goldman Sachs upgraded Cinemark Holdings (NYSE: CNK) from Neutral to Conviction Buy with a price target of $46, implying upside of 18%. Analyst Drew Borst highlighted attractive valuation and potential for an inflection in growth.
"We see upside to consensus estimates (9% above in 2017E due to higher global concession per cap) and believe CNK is well positioned as: (1) the 2017 film slate appears promising; (2) CNK’s recliner rollout, tax-on-top pricing and enhanced F&B initiatives should drive outsized growth; (3) LatAm should benefit from favorable FOREX and an improving economy; and (4) at 8.0X NTM EV/EBITDA (cons), CNK’s valuation is attractive given its growth profile vs. exhibitor peers," said Borst.
Discussing catalysts, the analyst said, "Growing benefit from recliner and concessions initiatives. CNK will exit 2016 with 22% of its screens reseated, up from 9% at the beginning of the year. (2) The 2017 film slate looks especially promising with franchise tent-poles including Star Wars Ep VIII, two DC films, five Marvel films, and a strong slate of kids’ sequels (e.g., Cars 3, Despicable Me 3). (3) LatAm (~30% of EBITDA) is poised for improved growth after a five year lull. For the past 5 years, LatAm has hindered CNK’s growth, due to a FX headwinds and a soft economy. GS Economists forecast GDP growth in the region for the first time in several years, which should help CNK. At current rates, FX should move from a headwind to a tailwind in 2017E. (4) Valuation is attractive. At 8.0X NTM EV/EBITDA (cons.), CNK trades at a half turn discount to exhibitor peers despite better growth (i.e., 9% 3-year EBITDA CAGR from 2015E-18E). The B/S, at 2.0X net leverage, is below the 3.2X peer average and below its historical average, providing optionality."
Shares of Cinemark Holdings closed at $38.82 yesterday.
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Related EntitiesGoldman Sachs Conviction Buy List, Goldman Sachs
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