CPXGF - Cineplex gains 3% as RBC boosts to Outperform after pullback

Cineplex ( TSX: CGX:CA ) rose 2.8% Monday alongside an upgrade to Outperform at RBC Capital Markets, which sees an attractive entry point following a pullback for the Canadian movie-theater chain.

The stock has dipped 17% over the past month, following a "two-year period of major industry disruption," but earnings visibility for the company is steadily getting better, analyst Drew McReynolds said.

"Specifically, we are encouraged by: (i) the prospect of a full year of normal operations in 2023; (ii) early indications that consumer demand and the effectiveness of an evolving theatrical release window remain largely intact relative to pre-COVID-19 trajectories; (iii) management’s expectation of returning to pre-COVID-19 consolidated EBITDA margin levels; and (iv) a balance sheet that should strengthen given adjusted EBITDA growth and outright debt repayment alongside the continued support of lenders," he wrote.

There's interesting option value ahead as well, he said, including some $315M in noncapital losses available for carryforward, and what he expects will be continued consolidation in the movie exhibition industry. The company also may be able to realize some part of $1.2B in damages it was awarded in the Cineworld litigation.

Assumptions around the COVID-19 "off-ramp" haven't changed, even if the timing has been delayed a bit, he said.

Some minor estimate and multiple revisions lead to a new price target of C$14, now implying 48% upside.

Along with other exhibitors, Cineplex has recently been wrestling with the slowest box office in several months .

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