The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Q1:13 box office ended down 12.4 percent year-over-year due to a quiet release slate and a difficult comparison. Q1:13 was up against a strong +24 percent comp that became progressively more difficult throughout the quarter. January ended down 0.6 percent, led by late-December Oscar-nominated releases.
February ended down 24.6 percent due to a quiet release slate. March ended down only 12.3 percent despite a difficult comparison of up 38.1 percent from last year’s release of The Hunger Games. Both March and Q1 were led by Oz: The Great and Powerful.
We estimate that the concentration of total box office within the top 10 films in Q1 was roughly flat year-over-year, suggesting stable film rental margins for Carmike (NASDAQ:CKEC). With that said, the concentration of total box office within the top three films in Q1 is ≈ 200 bps lower y-o-y, so we modeled film rental costs down slightly y-o-y. We believe in Q1 concession costs as a percentage of concessions revenue will begin declining from elevated 2012 levels as Carmike benefits from screen growth.
We are revising our 2013 estimates for revenue to $593 million from $589 million vs. consensus of $607 million, for adjusted EBITDA to $118 million from $115 million vs. consensus of $113 million, and for EPS to $1.20 from $1.10 vs. consensus of $1.18.
Our revised estimates reflect adjusted assumptions for 2013 quarterly box office growth, growth in concessions and other revenue consistent with 2012, and, on a per screen basis, better cost control…
We are initiating 2014 estimates for revenue of $644 million vs. consensus of $646 million, adjusted EBITDA of $132 million vs. consensus of $114 million, and for EPS of $1.60 vs. consensus of $1.51. We believe that consensus y-o-y EBITDA growth of less than 1% is too conservative, and we expect it to increase substantially, given a 6% increase in revenue and 28% increase in EPS y-o-y.
We believe there is upside to our estimate for EBITDA growth of 20 percent should Carmike continue to progress toward its goal of 3,000 screens in 2013 or early 2014.
Reiterating our OUTPERFORM rating and raising our price target to $21 from $19 on our new 2014 estimates. Our price target reflects 5.6x EV/EBITDA multiple applied to our 2014 estimate, below its peers and in line with its historical multiple, which we view as conservative given its successful turnaround. We believe there is upside to our price target given the potential for substantial earnings upside should revenue surpass expectations.
Additionally, further acquisitions in 2013 and 2014 would be incremental to our estimates.
Michael Pachter is an analyst at Wedbush Securities.
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