How to Play It: Holiday Movies and Investors' Screens

Fri Dec 16, 2011 7:12pm EST

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(Reuters) - By Lisa Richwine and Sam Forgione

Los Angeles and New York Dec 16 (Reuters) - Hollywood has yet to shake off the Thanksgiving hangover, with box office receipts slumping in the weeks since the late November holiday.

Last weekend, U.S. and Canadian ticket sales fell to an estimated $77.4 million, their lowest level in three years, according to figures from the box-office division of Hollywood.com. Year-to-date receipts so far total $9.6 billion, a decline of 3.87 percent from 2010, and total attendance stands at 1.2 billion, down 4.71 percent from this time last year.

That makes the Christmas movie season, which ranks second behind the summer as Hollywood's busiest season, particularly crucial for movie studios and theater chains this year.

Typically, the holiday season is when studios release their more artistic and award-worthy movies and the summer season is when they release their commercial blockbusters. But this year is unique, with commercially-driven films such as "The Adventures of Tintin," and sequels to "Sherlock Holmes," "Alvin and the Chipmunks," and Tom Cruise's "Mission: Impossible" all hitting theaters in the next two weeks. Industry analysts expect these films to draw big audiences and move the yearly box office tally closer to last year's performance.

Here are analysts' ideas on how to play movie-related stocks ahead of the holiday and into next year.

The BIG SCREENS

"Mission: Impossible- Ghost Protocol" with Tom Cruise swooped onto about 300 large-format IMAX screens on Thursday (Dec 15), six days ahead of the movie's wide release. That gives Imax a jump on opening weekend sales for a potential blockbuster, and could set a trend for other major movie releases.

The "M:I" IMAX experiment is aimed at generating buzz for the film's wider release and drawing filmgoers who can't wait to see Cruise dangling off the world's tallest building in the fourth sequel to his popular franchise. And after the lukewarm reception to the third "M:I" film relative to the first two, Hollywood studios will be watching closely to see if the gimmick works.

"If it works, I could see a lot of big movies doing the same thing," said Wedbush Securities analyst Michael Pachter.

IMAX Corp Chief Executive Rich Gelfond said the company was conferring with studios over a similar strategy for two to three films next year.

"IMAX is very much a pristine balance sheet with 18 percent debt to total cap," said Tim Ghriskey, chief investment officer of Solaris Asset Management. Ghriskey and analyst David Joyce at Miller Tabak and Co both mentioned IMAX's promising international growth, especially in China.

Although IMAX's revenue growth fell 3 percent in 2011, it peaked in 2010 and is expected to grow significantly in 2012.

"We're looking for a reacceleration of sales in 2012," said Ghriskey, while Thomson Reuters data projects 2012 revenue growth of 20.4 percent.

THE MOVIE STUDIOS

Moviegoing tends to fluctuate based mainly on the appeal of films rather than any swings in the economy, analysts said. For example, Disney's "Mars Needs Moms," which cost a reported $150 million to make, only grossed about $39 million worldwide, according to boxofficemojo.com.

The next two weeks of releases are expected to perform positively and build momentum for Hollywood heading into 2012.

"There's a bunch of movies that look very strong next year," Eric Wold, analyst with investment bank B. Riley and Co said, pointing to a new "Spider-Man" movie and sequels to "Men in Black" and "The Dark Knight."

But analysts and investors caution against playing major movie studio stocks based on short term box office sales.

"All these companies are so big that even a big movie- even a 'Harry Potter'- doesn't move the needle much," said Alan Gould an analyst with investment banking advisory firm Evercore Partners.

Gould said the March 23rd release of "The Hunger Games," based on a best-selling young adult sci-fi novel from 2008, could have a unique market impact given the smaller size of its studio, Lions Gate, which is about one-seventieth the size of Walt Disney Co..

"That (movie) will absolutely have a material impact," said Gould.

Another strategist, who also advised against playing major conglomerates like Viacom and News Corp based on the short-term box office, agreed on "The Hunger Games."

"There's some parallel between 'The Hunger Games' and 'Twilight' in terms of appeal," said Steve Birenberg, president and chief investment officer of Northlake Capital Management.

Wagers can even be made on the prospects for individual movies, but only with virtual money. A website called The Hollywood Stock Exchange offers a chance to invest fake dollars in box-office outcomes. A push to allow actual real-money trading of movie futures contracts died when Congress banned the practice in 2010.

CINEMARK

The performance of big films closely affects the fortunes of movie-theater chains. Among the biggest theater owners, investors pointed to Cinemark Inc as a good long-term bet.

"The best long term growth prospects are IMAX and Cinemark," said Karl Mills, president and chief investment officer of investment advisors, Jurika, Mills, and Keifer in San Francisco.

"I certainly like Cinemark with its Latin American exposure," said Solaris' Ghriskey, citing the region's growing movie-going business.

Ghriskey also said that Cinemark is most attractive because it sits on 60 percent debt to total cap, as opposed to Regal's 138 percent and Carmike's 103 percent.

In addition to those figures, Ghriskey said Cinemark is "14.6 times 2011 earnings and 11.8 times 2012 earnings. That's an interesting situation," he said.

(Reporting by Lisa Richwine and Sam Forgione; Editing by Peter Lauria and Carol Bishopric)

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