Marcus Corporation Stock Poised for a Comeback: Analyst Sees 45.4% Upside Potential
Despite a challenging year, Marcus Corporation (MCS) is a top pick for investors in 2024, according to Benchmark analyst Mike Hickey. He believes the stock is undervalued and poised for significant growth as the film industry continues its rebound. Hickey’s $18 price target represents a potential 45.4% surge from its recent closing price.
Key Takeaways:
- Undervalued Asset: Marcus’ underperformance in 2024 compared to competitors like Cinemark (CNK) and IMAX (IMAX) presents a unique buying opportunity.
- Film Industry Rebound: The return of blockbuster films and the easing of Hollywood strikes fuel optimism for Marcus’ future.
- Expansion Plans: Acquisitions like the Minnesota theater reopening enhance Marcus’ reach and growth potential.
- Short-Term Challenges: The stock has faced headwinds from a weak second-quarter box office and the removal from the S&P 600 index.
Taking Advantage of Market Mispricing
While the film industry has been on a path to recovery in recent months, Marcus Corporation has lagged behind its peers. Specifically, Marcus stock has fallen over 13% in 2024, whereas Cinemark has soared over 59% and IMAX has climbed more than 36%. Hickey attributes this discrepancy to a combination of factors, including the company’s relatively small size, the impact of the Covid-19 pandemic, and the recent Hollywood strikes.
"We believe Marcus offers a compelling catch-up trade," Hickey stated in his note. He emphasized that the company’s valuation does not reflect its potential to capitalize on the thriving film industry. "There is no reason for the market to abandon the company’s valuation," he said, "as it is well-positioned to benefit from the strong return of film products and market growth."
Marcus’ Resilience in the Face of Adversity
Hickey acknowledged that Marcus, like other exhibitors, faced challenges due to the Covid-19 pandemic and the Hollywood strikes that significantly disrupted production last summer. He also cited a weak second-quarter box office as contributing to the stock’s recent struggles.
However, Hickey highlights several key factors that suggest brighter days ahead. He points to the strong performance of "Deadpool & Wolverine", a promising sign for future releases. He also notes that the company’s removal from the S&P 600 and repurchase of convertible notes, which negatively impacted the stock price, are temporary setbacks.
Strategic Expansion Fuels Optimism
Marcus’ commitment to growth through strategic acquisitions further strengthens Hickey’s bullish sentiment. Specifically, the recent takeover of a Minnesota theater is a clear indication of the company’s dedication to expanding its footprint and capturing more market share.
The Minnesota theater reopening, under the Marcus brand, is a strategic move that will help the company solidify its position in the region and capitalize on the growing demand for cinema experiences.
Diversified Business Model Offers Stability
Marcus, unlike many of its peers, operates a diversified business model that includes hotels, restaurants, and entertainment. While the film industry remains a key driver of revenue, the company’s diverse portfolio provides a cushion against potential volatility.
This diversification is particularly valuable in a period of economic uncertainty and changing consumer preferences. It ensures that the company remains resilient even when one part of its business faces headwinds.
Looking Ahead: Growth and Opportunity
With its strategic expansion plans, a resilient business model, and the strong rebound in the film industry, Marcus Corporation is well-positioned for future success. Hickey’s recommendation is based on the belief that the market is overlooking the company’s potential and that the stock is significantly undervalued.
The upcoming earnings report on Thursday will be a key event for investors to gauge the company’s progress and confirm its trajectory for the rest of the year.
While the short-term challenges are undeniable, Marcus Corporation’s long-term prospects are bright. Hickey’s bullish outlook, combined with the company’s commitment to growth, suggests that investors should seriously consider adding Marcus Corporation to their portfolios as a potential source of strong returns.
