Making Money From the Movies With Cinemark

Jan. 3.11 | About: Cinemark Holdings, (CNK)

There’s no stock analysis simpler than what Wall Street legend Peter Lynch recommends: Buy stock in companies that you know and use their products and services every day. Cinemark Holdings (NYSE:CNK) is one of those stocks, and is our stock pick this week. It is involved in the motion picture exhibition business, with hundreds of theaters and thousands of screens.

According to Zacks Investment Research, Americans still love going to the movies, and are still willing to spend big bucks on popcorn and soda too; good news for companies like Cinemark.

Cinemark recently reported strong third quarter earnings, driven by double-digit growth in ticket and concession sales. Estimates have been trending higher, too, pushing the stock to a Zacks #2 Rank (Buy).

People Still Spending at the Movies

Cinemark reported its third quarter results on November 5. Total revenue improved 12.8%, driven by a stellar 13.9% increase in admissions revenue. Overall attendance was up 9%.

Revenue from concessions was also strong, increasing 11.2%. (Apparently people are still willing to pay ridiculously high prices for that buttery popcorn.) And, yes, the companies make a killing off of it. The gross margin on concessions was a whopping 84.4% in the quarter for Cinemark.

Meanwhile, operating income increased 32.5% due to high operating leverage.

Earnings per share came in at $0.29, beating the Zacks Consensus Estimate by 2 cents. It was the company's ninth consecutive positive surprise. It was also a 53% increase over the same quarter in 2009.

Cinemark Outlook

Estimates for both 2010 and 2011 have been climbing off the strong quarter, as seen in the Price & Consensus chart below. The Zacks Consensus Estimate for 2010 is $1.22, representing an 8% increase over 2009 EPS. The 2011 estimate is currently $1.41, corresponding to 15% annual growth.

Cinemark Dividend Increase

In its third quarter press release, Cinemark announced a 17% dividend increase -- its first hike since 2007. The stock currently yields an attractive 3.9%.

Cinemark Attractive Valuation

Shares appear to be reasonably priced, trading at 15x forward earnings. This is a significant discount to the industry average of 22.2x. Its price to sales ratio of 1.0 is also below the peer group average at 1.1.

Buy Entry: 17.23 to 17.49

Stop-Loss: 16.09

Take Profit Areas: 19.04 to 19.66, 20.33 to 21.03, 22.80 to 23.57

Cinemark Company Profile

Cinemark Holdings, Inc. and subsidiaries engage in the motion picture exhibition business. As of December 31, 2009, the company operated 424 theatres and 4,896 screens in the United States, Canada, and Latin America. The company also manages theatres in the United States, Brazil, and Colombia. Cinemark Holdings is headquartered in Plano, Texas.

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Cinemark Stock Chart

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CNK over the next 72 hours.