The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.
Carmike (NASDAQ:CKEC) Q4 quarter-to-date box office is trending up 18%. October was up 10%, led by Taken 2, and November month-to-date is up 24% due to new releases Skyfall and the final Twilight film. The coming weekend may be relatively weak due to a dearth of new releases, but December should be in line with our raised estimates as The Hobbit compares positively to last year’s Sherlock Holmes: A Game of Shadows. With that said, our estimate assumes some deceleration in December.
We revised our Q4 estimates to reflect higher box office. Our Q4 revenue estimate goes to $147 million from $129 million and our Q4 Adjusted EBITDA estimate goes to $22.4 million from $19.6 million. We note that our Q4 EPS estimate goes to $0.15 from $0.18 prior, which reflects higher interest expense due to the acquisition. Our 2013 estimates remain unchanged.
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Notwithstanding a likely very solid Q4, Q1:13 is up against a strong +24% comp. We expect a negative comp in Q1.
Carmike completed its acquisition of 16 theaters with 251 screens earlier in Q4 than we had anticipated. The acquisition closed on November 15. We had previously anticipated closure at the end of Q4, and therefore adjusted our estimates to reflect roughly half of the quarter in additional revenues from the acquired theaters. We also increased interest expense in Q4 to reflect higher interest payments due on the acquired theaters. Including capital leases, debt from the acquisitions grew by ≈ $100 million and the company spent $19 million in cash for the 16 theaters, raising enterprise value by $120 million. We expect no additional capital expenditures, and expect synergies to positively impact financials in 2013. After adjustments, we expect 2013 adjusted EBITDA of $110 million.
Reiterating our OUTPERFORM rating and $19 price target. Our price target reflects a 5.2x EV/EBITDA multiple applied to our 2013 estimate, well below its peers and below its historical multiple of 5.9x given some volatility during its turnaround, plus ≈ 7x applied to $3 million in incremental accounting profit we project in 2013 from Screenvision (adding $1 to its PT). We believe there is upside to our price target given the potential for substantial earnings upside should revenue surpass expectations.
Michael Pachter is an analyst at Wedbush Securities.
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