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Why Marcus Corp. Is A Strong Sell


  • MCS has rallied hard from the March bottom.
  • But I think the recovery will either be very slow or not come at all.
  • With an enormous earnings multiple, Marcus is way overpriced.

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The COVID-19-related shutdowns across most of the developed world created some extremely difficult conditions for a variety of businesses. Among the hardest hit were movie theaters and hotels, the former suffering because they simply aren't allowed to open in most places, and the latter because travel all but stopped earlier this year. One company that is exposed to both in a big way is Marcus Corporation (NYSE:MCS), and with shares rallying extremely hard to the upside in recent weeks, I think it is time to take profits.

Exposure to entertainment and travel at just the wrong time

Marcus had a decent year in 2019, posting record revenues, but seeing operating income and earnings-per-share decline, respectively.

Source: Investor presentation

Revenue was up more than 16% but earnings fell on slim margins due to high operating costs. The company has built itself over the years on high leverage to the movie theater business, which is how the company began 85 years ago. Marcus has always been a movie theater company, but has also dipped its toe into restaurants and hotels in the past in various forms. It still has hotels and restaurants/bars, but this is primarily a movie theater business, and I think shareholders may suffer for it.

Obviously, Marcus had to shut down its theaters earlier this year. However, the company came into the crisis with a decent balance sheet that should see it through this crisis.

Source: Investor presentation

It took the above actions to strengthen itself against shutdowns, including a new $90 million term loan, and noted it had $126 million of cash on the balance sheet as of the end of Q1. Marcus believes it can continue with shutdowns until 2021 if needed, which should be a sigh of relief for investors that may have thought Marcus wouldn't survive. I think it will

This article was written by

Josh Arnold profile picture
Josh Arnold has been covering financial markets for a decade, utilizing a combination of technical and fundamental analysis to identify potential winners early on in their growth cycles. Josh's focus is mainly on growth stocks. His goal is efficient and profitable use of capital, which overly rigid buy-and-hold strategies do not allow. Josh is the leader of the investing group Learn more.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (6)

Find it hard to believe this is not worth $20 share
How is MCS at these prices today at $7.43? Still overvalued? Does MCS have the wherewithal to survive to the other side of this pandemic?
With businesses reopening, I think many people are feeling more comfortable with their understanding of Covid-19 risks and how to appropriately take precautions. Summer is on it’s way, school is out, and people want a sense of getting back to normal. I think Marcus Corp is worth a look as it’s customer base may be right around the corner. Take the record crowds in Lake Geneva, WI over Memorial Day for example, just down the road from their resorts.
Marcus is the best operator with relatively low leverage in a challenged industry. One question for investors in whether any of the theater properties dislocated by the current crisis will end up under Marcus' management. The company already has a third-party hotel management arm. Going into the third-party theater management business in partnership with financial players who may end up with entertainment assets defaulted to them could make a lot of sense.
The Boy Plunger profile picture
you know they will be able to refund $50 million+ in NOLs right? and that they democratic convention is being held in Milwaukee this year? and they own tons of high quality real estate that is on their balance with a historical basis that is close to nothing? even assuming a very low historical multiple on the hotel business, and after valuing all of their other real estate and IP assets, the theater business trades for about 3x historical earnings here. maybe it sells off some, but it's not expensive.
Andrew Shapiro profile picture
@The Boy Plunger Agree with many of your points (owned real estate at low cost basis) but don't be looking for a lot of money from the democratic convention or any convention in MKE anytime soon.
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