Shares of movie theater stocks, including AMC Entertainment Holdings (AMC), Cinemark Holdings (CNK 3.44%), and National CineMedia (NCMI 11.11%) all rose today after Moderna announced positive phase 3 results for its coronavirus vaccine.
The biotech company said this morning that its coronavirus vaccine had a 94.5% efficacy rate in late-stage trials on a pool of more than 30,000 participants. Moderna said it expected to have 20 million doses of the vaccine ready by the end of the year, and would produce between 500 million and 1 billion doses in 2021.
The news follows last week's announcement from Pfizer and BioNTech that their coronavirus vaccine was successful in over 90% of participants in phase 3 trials. Moderna's momentum builds on the market's belief that vaccines will bring about an end to the pandemic in the coming months, possibly as soon as April, according to Dr. Anthony Fauci, and the news helped boost so-called "recovery stocks," many of which are in consumer discretionary sectors that are sensitive to social distancing restrictions.
As of 12:12 p.m. EST, AMC stock was up 5.6%, Cinemark Holdings was up 4.5%, and National CineMedia had gained 7.8%. At the same time, the small-cap Russell 2000 was up 2.3%, showing the most economically sensitive stocks were bouncing on the news.
It wasn't surprising to see this trio of stocks gain today as all three surged on the news from Pfizer last Monday, which sent shockwaves through the markets as investors sold "stay-at-home" stocks and rotated into recovery stocks that are set to benefit when the pandemic ends and the economy normalizes.
However, while investors may be able to count on a vaccine, there's still a question of whether these companies can survive until then, and what kind of financial shape they will be in once the pandemic ends. The good news, at the very least, is that the prospect of a vaccine should make it easier for these companies to raise much-needed capital.
AMC, for instance, the world's largest movie theater operator, said in October that it could run out of cash as soon as the end of this year or early next year as audiences have been slow to come back and most studios don't want to release in movies in theaters until they're confident that viewers will return. Last week, AMC partnered with Goldman Sachs and B. Riley to sell as many as 20 million shares in an effort to raise much-needed cash. Still, investors balked at the news as a sale would only raise about $60 million and would dilute current shareholders by close to $20 million. Even if AMC can survive until a vaccine is widely available, the industry was struggling before the pandemic, and studios now have a direct pipeline into audiences' homes thanks to streaming.
Cinemark, the nation's No. 3 theater chain, has also seen revenue evaporate during the crisis, posting a 96% decline in sales to $35.5 million in its most recent quarter, but the company is in a better financial position than AMC, making it more likely to survive the crisis. As of the end of September, the company had $825.7 million in cash and $2.4 billion in long-term debt, and reported an adjusted EBITDA loss of $128 million in the quarter. That shows it is burning through cash quickly, but it should have enough to make it to the spring when a vaccine could be in wide distribution.
National CineMedia isn't a movie theater company, but an operator of an advertising network that runs in theaters before movies. Not surprisingly, National CineMedia's business has also been decimated by the COVID-19 pandemic, and revenue plunged 95% to just $6 million in its third quarter. As of Oct. 30, 53% of the theaters in its network had reopened. The company has significantly reduced its expenses through layoffs that have led to a permanent 20% headcount reduction, compensation cuts, and negotiations with landlords and other vendors, and is in a strong cash position with $220.7 million in cash. Management was even confident enough to announce a quarterly dividend of $0.07 per share, which was reduced earlier in the year from $0.19, but still shows management believes it has cash to return to shareholders. With lower fixed costs than movie theater chains, National CineMedia's business model is more flexible, but its business won't normalize until audiences return to theaters.
All three of these stocks have nearly identical performances this year, down 56% to 58%, indicating that investors view the pandemic's impact as being roughly the same on all three. However, AMC appears to be the most vulnerable as the company is set to dilute shareholders by close to 20% and has already formally warned about running out of cash.
Given the industry's challenges with COVID-19, any positive vaccine news should help lift these entertainment stocks, but considering the long-term headwinds from streaming technology, investors may want to look elsewhere for recovery plays.