Carmike Cinemas Upgraded to Hold

Highlights include Carmike Cinemas, Inc. (CKEC), Cinemark Holdings, Inc. (CNK) and Regal Entertainment Group (RGC).

We have upgraded our rating on shares of Carmike Cinemas (CKEC) from Sell to Hold, following the company's release of 4th quarter results. Although the outlook remains challenging, the 4th quarter results contained encouraging signs, as several operating metrics either improved or stabilized, while Carmike continued to pay down debt.

Unlike larger industry peers such as Cinemark Holdings (CNK) and Regal Entertainment Group (RGC), Carmike focuses its operations in small- to mid-sized non-urban markets.

The company had posted disappointing results throughout the first 9 months of 2008, as increases in ticket prices could not offset declines in attendance. We note that shares had declined by more than 60% since we initiated coverage with a Sell rating in October 2008.

During the 4th quarter, however, average attendance per screen declined only 1.2%, while average revenue per patron increased 5.2%. The net result was a 1.5% increase in revenue, and a 10% increase in theatre-level cash flow.

The company suspended its dividend in September 2008, and has since made two voluntary debt prepayments of $10 million each. Debt still comprises an overwhelming majority of the company's total enterprise value, however, leaving the company with limited financial flexibility.

Looking forward, the company stands to benefit from additional 3D motion picture releases in 2009 and 2010. Despite its position as the 4th largest cinema circuit in the United States, the company has the largest installed base of 3D screens of any domestic exhibitor. The premium pricing commanded by these films should prove beneficial.

The industry-wide box office figures have been impressive thus far in 2009. That fact, combined with the company's cost-cutting efforts and focus on paying down debt, has resulted in an improved outlook for Carmike going forward. The company remains in a challenging financial position, however, and as such we believe that a Hold rating is appropriate at this time.

Read the full analyst report on CKEC

Read the full analyst report on CNK

Read the full analyst report on RGC