Here’s Why Carmike Cinemas Can Meet Its Goals

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

Carmike Cinemas (NASDAQ:CKEC) will report Q1:13 results after the market close on Monday, May 6, and will host a conference call at 2:00pm PT (dial-in: 800-732-8470, webcast: www.carmikeinvestors.com)

We expect Q1 results in line with our recently revised estimates. We expect Q1 revenue of $128 million, compared with consensus of $130 million, EBITDA of $24 million, compared with consensus of $22 million, and EPS of $0.10, compared with consensus of $0.07. The company did not provide forward guidance.

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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. 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 expect Q1 concession costs of goods will begin declining from elevated 2012 levels as Carmike benefits from screen growth.

The company targets growth to 300 theaters and 3,000 screens. We expect Carmike to reach its goal of 300 theaters as early as the end of 2013 given the currently favorable conditions for accretive acquisitions.

We expect Q2 to end up 5 percent despite a slow April. Q2 quarter-to-date box office is trending down 9.9 percent through April 29. However, May and June include blockbuster releases, Iron Man 3, The Great Gatsby, Star Trek Into Darkness, Fast & Furious 6, Hangover Pt 3, Man of Steel, Monsters University, and World War Z.

Reiterating our OUTPERFORM rating and $21 price target. 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. Further acquisitions in 2013 and 2014 would be incremental to our estimates.

Michael Pachter is an analyst at Wedbush Securities.

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