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Why Cinemark Holdings Stock Jumped as much as 11% on July 15

By Reuben Gregg Brewer – Jul 15, 2020 at 6:01AM

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The movie theater operator got a shot in the arm from some upbeat medical news, but there are still big issues to consider here.

What happened

Shares of movie theater operator Cinemark Holdings (CNK 2.57%) rose roughly 11% in the first hours of trading on July 15. There was no specific news out of the company, but Moderna reported positive results on a key COVID-19 vaccine trial. It could be important for Cinemark, at some point.

So what

Movie theaters are seen by many as a breeding ground for the coronavirus, which tends to spread easily in group settings. So it wasn't much of a shock that Cinemark's business was essentially closed down when the government began its efforts to slow the spread of COVID-19. In fact, the company won't even start to reopen its theaters until July 24. In some areas of the country that might not even be the right date, as states seeing an uptick in coronavirus cases are starting to rethink their reopening plans.   

Two people drinking sodas in a movie theater

Image source: Getty Images.

However, Moderna's upbeat phase 2 trial results, in which an antibody response was seen in all 45 participants, will lead to a phase 3 trial that will start on July 27. If that trial is successful, the company hopes to bring a safe and functional vaccine to market as quickly as possible. That would be wonderful news for Cinemark, which would likely be able to operate in a more normal fashion if there is a vaccine. Thus the stock price bump.   

But investors shouldn't get too upbeat, there's still a long and difficult process involved in turning Moderna's vaccine hopes into reality. Cinemark will likely be operating with heightened cleaning costs, reduced attendance, and occupancy restrictions when it finally reopens theaters, and for many months beyond. 

Now what

Moderna's vaccine progress is very good news, but don't get caught up in the excitement. There are still very real issues for Cinemark Holdings to deal with. Not least of which is a leveraged balance sheet. Debt-to-equity is around 1.7 times, which is a troubling figure for a company that has been shut down by government mandate for a few months. Long-term investors should probably wait for more progress on a vaccine or, at the very least, some good updates surrounding Cinemark's reopening plans.   

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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