Leading entertainment company AMC Entertainment Holdings, Inc.’s (AMC) second-quarter earnings report showed an adjusted net loss of $6.60 million. Moreover, operating costs and expenses increased 6.8% year-over-year to $1.26 billion.
In addition, AMC’s trailing-12-month EBIT and EBITDA margins of negative 5.3% and 3.82% are lower than the industry averages of 8.50% and 18.49%. Its trailing-12-month gross profit margin of 10.74% is 78.3% lower than the 49.37% industry average.
Additionally, the stock has slumped 76.5% over the past six months and 82.6% over the past year to close its last trading session at $13.64.
So, quality entertainment stocks National CineMedia, Inc. (NCMI), Cinemark Holdings Inc. (CNK), and Imax Corporation (IMAX), which look better positioned to capitalize on the industry’s growth prospects, could be wise investments instead.
The entertainment industry is well-positioned to witness growth thanks to 5G infrastructure and the adoption of advanced technologies. Industry leaders are also resorting to artificial intelligence (AI) tools, leveraging machine learning algorithms and natural language processing to refine content and predict audience engagement based on tailored recommendations.
The global movies and entertainment market is expected to reach $169.62 billion by 2030, growing at a CAGR of 7.2%.
Moreover, advancements in Internet penetration, smart TV, mobile, and 5G infrastructure are set to further fuel the streaming marketplace, with a particular focus on original content production.
With these favorable trends in mind, let's delve into the fundamentals of the three Entertainment - Movies/Studios stock picks, beginning with the third choice.
Stock #3: National CineMedia, Inc. (NCMI)
NCMI operates a cinema advertising network in North America. It engages in the sale of advertising to national, regional, and local businesses in Noovie, a cinema advertising and entertainment pre-show seen on movie screens; and sells advertising on its Lobby Entertainment Network, a series of strategically placed screens located in movie theater lobbies, as well as other forms of advertising and promotions in theatre lobbies.
On June 20, 2023, NCMI announced a deal with Adelaide, the leader in attention-based media quality measurement, bringing Adelaide’s attention transaction metric (AU) to the cinema advertising industry for the first time.
NCMI’s trailing-12-month net income margin of 253.7% is significantly higher than the industry average of 4.03%. Its trailing-12-month gross profit of 52.83% is 7% higher than the industry average of 49.37%.
In the fiscal second quarter (ended June 30, 2023), NCMI’s revenues came in at $14.80 million. Its net income came in at $545.30 million, compared to a loss of $8.60 million in the previous year's quarter. Also, net income per NCMI common share came in at $3.13, compared to a negative $0.01 in the previous year's quarter.
NCMI’s revenue in the fiscal third quarter (ending September 2023) is expected to increase 4% year-over-year to $56.70 million. Moreover, it has surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
NCMI’s shares have gained 128.6% year-to-date to close the last trading session at $5.03.
NCMI’s POWR Ratings reflect this robust outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Value and a B in Quality. Among the six stocks in the Entertainment - Movies/Studios industry, it is ranked #3.
To see additional POWR Ratings for Momentum, Growth, Stability, and Sentiment, click here.
Stock #2: Cinemark Holdings Inc. (CNK)
CNK and its subsidiaries engage in the motion picture exhibition business.
On August 28, 2023, CNK announced that the buzzed-about horror-comedy Onyx the Fortuitous and the Talisman of Souls would be released exclusively in theaters for a one-night event on October 19.
CNK’s trailing-12-month EBIT margin of 8.86% is 4.2% higher than the industry average of 8.50%. Its trailing-12-month cash per share of 6.36x is 325.5% higher than the industry average of 1.49x.
CNK’s total revenue for the fiscal second quarter that ended June 30, 2023, increased 26.6% year-over-year to $942.30 million, while its operating income stood at $168.40 million, compared to an operating loss of $18.60 million in the year-ago quarter.
Net income and net income per share attributable to CNK came at $119.10 million and $0.80, compared to net loss and net loss per share of $73.40 million and $0.61, in the prior-year quarter, respectively. Its adjusted EBITDA increased 67.4% year-over-year to $231.50 million.
Analysts expect CNK’s revenue for the fiscal third quarter ending September 2023 to increase 17.7% year-over-year to $765.50 million, while its EPS is expected to come at $0.31. It has an impressive earnings surprise history, surpassing its consensus revenue estimates in each of the trailing four quarters.
The stock has gained 93.8% year-to-date to close the last trading session at $16.78.
CNK also has an A grade for Growth and a B in Momentum. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated CNK's Stability, Value, Sentiment, and Quality. Get all CNK ratings here.
Stock #1: Imax Corporation (IMAX)
Headquartered in Mississauga, Canada, IMAX is a global technology platform for entertainment events. The company’s segments include IMAX Technology Network; IMAX Technology Sales and Maintenance; and Film Distribution and Post-Production.
On September 5, 2023, IMAX announced that "Oppenheimer" had reached $170 million in the global box office across its network, making it the fifth highest grossing IMAX release of all time.
On August 2, IMAX announced that it had delivered approximately $176.20 million at the global box office in July, marking its highest-grossing month in history. The figure surpassed the previous highwater mark, set in 2019, by a whopping $52.10 million.
IMAX’s trailing-12-month levered FCF margin of 18.36% is 129.3% higher than the 8.01% industry average. Its trailing-12-month EBIT margin of 8.70% is 2.3% higher than the industry average of 8.50%.
For the fiscal second quarter that ended June 30, 2023, IMAX’s total revenue increased 32.5% year-over-year to $97.98 million, while its gross margin grew 31.5% from the year-ago quarter to $57.89 million.
Its operating income was $14.23 million, compared to a loss of $101 thousand in the prior-year quarter. Also, the company’s adjusted net income and net income per share stood at $14.40 million and $0.26, up 269.2% and 271.4% year-over-year, respectively.
Street expects IMAX’s revenue to increase 29.2% year-over-year to $388.62 million for the year ending December 2023. Also, its EPS is expected to grow significantly year-over-year to $0.86 for the same year. Moreover, the company has topped the consensus revenue estimates in each of the trailing four quarters.
IMAX’s shares have gained 29.7% year-to-date to close the last trading session at $19.01.
IMAX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade in Growth and a B in Quality. Within the same industry, it is ranked first.
Click here to see the other ratings of DOCU (Momentum, Value, Sentiment, and Stability).
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CNK shares were trading at $16.52 per share on Wednesday morning, down $0.26 (-1.55%). Year-to-date, CNK has gained 90.76%, versus a 17.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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