The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Q3 revenue was in-line with our estimate, but costs were higher than recent trends. Despite managing film rental and concession costs in line with our estimates, Carmike’s (NASDAQ:CKEC) other theater operating costs and G&A rose well above our expectations, triggering EPS of $0.13 vs. our $0.24 estimate. We believe that as it grows its footprint, Carmike will be able to leverage its G&A, and will gain negotiating leverage with the studios to drive film rental costs even lower. For the next fiscal year, we anticipate a higher run-rate for other theater operating costs and G&A.
Adjusting our forward estimates to reflect a higher cost structure. We are maintaining our FY:12 estimate for revenue of $524 million, but are decreasing our estimates for Adjusted EBITDA to $87 million from $91 million and for EPS to $0.87from $1.23 to reflect a higher cost structure as the company adds screens. Our FY:13 Adjusted EBITDA goes to $110 million from $115 million.
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Carmike will acquire 251 screens in Q4. Including capital leases, debt from the acquisitions grows by ≈ $100 million and the company will spend $19 million in cash for the 16 theaters, raising enterprise value by $120 million. We expect no additional capital expenditures, and expect synergies to positively impact financials in 2013. After adjustments, we expect 2013 adjusted EBITDA of $110 million.
Q4 quarter-to-date box office is tracking up over 20%, with all major Q4 blockbusters still upcoming. Taken 2 led October, and we expect the Twilight finale to lead November and The Hobbit to lead December releases. We recall that in Q4:11 the release slate was crowded with single-genre weekends, and overall box office receipts suffered as a result. We do not view this as a risk to Q4:12 given a variety of blockbusters within all genres as well as more favorable timing of the release slate compared to last year. As a result, we view our Q4 box office estimate of up 6.2% as conservative.
Reiterating our OUTPERFORM rating, but lowering our price target to $19 from $21. Our price target reflects a 5.2x EV/EBITDA multiple applied to our 2013 estimate, well below its peers and below its historical multiple of 5.9x given some volatility during its turnaround, plus ≈ 7x applied to $3 million in incremental accounting profit we project in 2013 from Screenvision (adding $1 to its PT). We believe there is upside to our price target given the potential for substantial earnings upside should revenue surpass expectations.
Michael Pachter is an analyst at Wedbush Securities.
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