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Potential COVID-19 vaccine boosts theater stocks, but not a cure-all – analysts

News of a potential coronavirus vaccine breathed new life into theater stocks this week, but analysts warn that exhibitors are not out of the woods yet.

A COVID-19 vaccine from Pfizer Inc. and Germany's BioNTech SE was found to be more than 90% effective at preventing infection with the virus, according to interim data from a late-stage clinical trial released Nov. 9. The news sent exhibitor stocks soaring, with AMC Entertainment Holdings Inc. and Cinemark Holdings Inc. shares each climbing more than 50% from the prior trading day. But although the results are clearly positive, analysts note theater owners are still in for a rough few months.

B. Riley Securities analyst Eric Wold said that with a potential vaccine on the horizon, studios are still likely to continue pushing back the theatrical release dates of their upcoming films.

"If studios see a stronger likelihood that the major moviegoing markets will be increasingly open by the spring/summer period (as a result of a vaccine and new COVID-19 cases being on the decline), then we would expect those studios to make the ... decision to move films scheduled for the remainder of this year and even early next year into more opportunistic slots in 2021/2022," Wold said.

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After the disappointing Labor Day release of Warner Bros.' "Tenet," the studio pushed back the release of its "Wonder Woman 1984" from October to Christmas. Wold said he now expects Warner Bros. to delay the film even further. Other releases postponed due to the pandemic include The Walt Disney Co.'s "Black Widow;" the James Bond film "No Time to Die;" and "Candyman," "F9" and "Jurassic World: Dominion," all from Comcast Corp.'s Universal Pictures — just to name a few.

With few new films coming out before the end of the year, AMC is fighting to survive, trying to raise capital through stock sales and other maneuvers.

"It all really comes down to one thing. We believe that we will need to raise more capital to assure ourselves that we can lengthen our financial runway at least [into] the next summer," AMC CEO Adam Aron said during the company's Nov. 2 earnings conference call.

He noted the company is currently trying to raise additional equity capital through stock sales. "We have commenced discussions with ... more than a dozen strategic investors about their taking an equity interest in AMC. We are also talking with our existing lenders to gauge their interest in further bolstering our liquidity as they did this past summer," Aron said.

Wedbush Securities analyst Michael Pachter said in a note on AMC's earnings results that the company remains "the highest risk in the exhibition space" given its heavy debt load. The company ended the September quarter with $11.34 billion in total debt, according to S&P Global Market Intelligence data.

"In total, AMC has raised roughly $900 million from new debt and equity, reduced cash payments during the pandemic, and sold over $80 million in assets," Pachter said.

Pachter estimates that with a $100 million equity issuance, AMC will have enough liquidity to survive through the fourth quarter, but it would need to raise more money to survive through the first quarter of 2021.

As of Nov. 1, total gross box office receipts were down 77.8% year over year to $2.07 billion and admissions have fallen 78.3% to 221.2 million, according to Kagan, a media research group within S&P Global Market Intelligence.

There is a silver lining for the silver screen, however. Given the recent progress on a vaccine, Wold believes investors will look more favorably on AMC going forward.

"AMC has openly stated that management is in discussions with a dozen strategic investors," the analyst said. "Should this improved line-of-sight into a widely available COVID-19 vaccine help to increase confidence that the moviegoing industry and broader exhibition group can begin to return to a more normal state during 2021, we believe these discussions (and the potential terms of any agreement) are likely to be improved by this news," Wold added.

As for Cinemark, both Wold and Pachter note the company is on stronger financial footing due to its healthier balance sheet.

"We have significant concerns about the exhibition industry and the timing of its return to normalcy," Pachter at Wedbush said in a Nov. 5 note on Cinemark's earnings results. "With that said, we continue to view Cinemark as a well-managed company with the most stable results in the industry, and therefore the best exhibitor to own. Cinemark has demonstrated that it can withstand closures and/or low utilization throughout 2021."