Movie theater operators' shares declined with the broader market on Friday as an analyst said Cinemark Holdings and other large chains are undervalued, but high food costs are likely to pressure food concession margins.
In a note to investors, Wedbush Morgan Securities analyst Chris White noted that the domestic box office has performed above expectations. He said chains can look forward to easier comparisons in the fourth quarter, when "Harry Potter and the Half-Blood Prince" and a "Madagascar" sequel are released.
"The large exhibitors appear to be trading down recently largely on broader macro themes rather than on any tangible evidence that movie attendance is weakening," White wrote.
White maintained his "Buy" rating on Cinemark Holdings Inc., but lowered his price target to $14 from $17. The analyst also trimmed his estimates for Cinemark through 2009 due to higher food costs.
"Price increases have maintained margins in recent quarters, but we believe the current economic environment will make additional price increases more difficult to implement, at least in the short term," the analyst said.
White also reduced his forecast for Cinemark's international growth. The Plano, Texas, company operates more than 400 theaters worldwide.
Cinemark fell 72 cents, or 6 percent, to $11.22, after touching $11.08 earlier in the session, the company's lowest level since its IPO priced at $19 per share in April 2007.
Elsewhere in the sector, Carmike Cinemas Inc. lost 28 cents, or 4.8 percent, to $5.54. Regal Entertainment Group dipped 2 cents to $15.04.
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