Cinema stocks slammed amid coronavirus; some chains stay open, shrink audiences

Shares of cinema operators were sharply lower Monday, as federal agencies and local governments announced restrictions on the number of people allowed to gather in one place as they work to contain the coronavirus that causes COVID-19.

The major chains have not yet opted to close all cinemas across the country, but rather are complying with the latest guidance from the Centers for Disease Control and Prevention. The CDC has recommended that all businesses limit any group of people to no more than 50 and that they respect “social distance” rules.

AMC AMC, -17.86%, the biggest cinema chain in the U.S., said earlier it is reducing ticket availability to 50% of normal capacity if that gets the company to a smaller capacity number than 50.

“AMC also is complying with all governmental mandates to close certain theaters, restaurants or bars as may be applicable,” the company said in a release.

Regal Cinemas is taking the same measure as well as stepping up its cleaning protocols. Cinemark Holdings Inc. CNK, -43.12% did not respond to a request for comment.

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The situation may soon change as individual states announce their own plans to order cinemas to close. New York Gov. Andrew Cuomo said Monday the state is coordinating with New Jersey and Connecticut on a series of measures, including closing all cinemas effective 8 p.m. this evening.

Maryland made the same announcement shortly after and other states are expected to follow.

The pandemic is already devastating cinema ticket sales, which fell to their lowest level since 2000 over the weekend as Americans stayed away from enclosed spaces. Receipts totaled about $55.3 million in U.S. and Canada theaters, according to studio estimates Sunday reported by the Associated Press. The last time ticket sales were that low was in 2000, when $54.5 million in tickets were sold on a quiet September weekend, the AP reported, citing data from Comscore.

Bank of America analysts said Monday they are shifting to a more conservative stance on the media and cable sector in light of the spread of the virus, and named AMC as one of the most levered in its coverage universe with a debt to EBITDA ratio of 6.1 times.

“AMC appears to be most challenged, in our view, as the company has no material contractual revenues or business interruption insurance,” analysts led by Jessica Reif Ehrlich wrote in a note to clients.

Bank of America is modeling its forecasts for the sector on the 2001 recession, which came after the bust and September 11, 2001 attacks, although analysts acknowledge there is no comparable that captures widespread quarantine activity.

“Given the unprecedented nature of the coronavirus and its ramifications with theme parks closed, cruise ships shut down for at least a month, major league and college sports suspended, TV and film production halting, film releases delayed and movie theaters likely to close the financial hit to media companies with exposure to these areas could be substantial,” said the note.

Benchmark downgraded its rating on AMC to hold from buy on Monday, and noted cinemas are also closed in France and Italy.

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“We remain concerned that we could see additional closures or negative influence from movie patron frequency within the impacted regions,” analyst Mike Hickey wrote in a note to clients.

Hickey said he’s also worried about increased film development/release delays from Hollywood studios amid the growing necessity for social distancing.

“We anticipate that these headwinds are transitory and we expect a growth reset over the medium term, but we’re increasingly concerned that AMC will have enough financial flexibility to cover a longer than anticipated slowdown or the potential for a complete shutdown of its theatrical network. The industry struggles with negative investor sentiment including competitive streaming services, negative attendance trends, film rent expense and dampened pricing power, all of which complicates investors willingness to look past near-term market contagions.”

AMC shares were trading down 15%, Cinemark was down 22%, IMAX was down 11% and cinema advertising network operator National CineMedia Inc. NCMI, -8.08% was down 9%. U.S.-listed shares of Cineworld CINE, -15.14%, the UK company that owns Regal Theaters, were down 11%. The S&P 500 SPX, -8.77% was down 7% and the Dow Jones Industrial Average DJIA, -9.10% was down 6.7%.

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